https://www.inpex.co.jp/english
This Report was printed using environmentally conscious
methods and vegetable oil-based ink.

INPEX CORPORATION Annual Report 2020 For the period ended December 31, 2020

Akasaka Biz Tower
5-3-1 Akasaka, Minato-ku, Tokyo
107-6332, Japan
Phone: +81-3-5572-0200

Annual Report 2020
For the period ended
December 31, 2020

ABOUT OUR REPORTING

Communication Tool Map
Financial Information

INPEX CORPORATION is Japan’s largest oil andnatural gas E&P company.
INPEX will proactively engage in energy structure reforms
towards the realization of a net zero carbon society by 2050, while
responding to the growing energy demands of Japan and the world
and fulfilling the company’s responsibility for the development andstable supply of energy over the long term.

Publications

Our Mission

OnlineWe are committed to contributing to the creation of a brighter
future for society through our efforts to develop, produce anddeliver energy in a sustainable way.

Non-financial Information

Annual Reports
Securities Reports
Fact Books
Sustainability Reports
Corporate Brochures

Corporate Website

Securities Reports (available in Japanese only)
https://www.inpex.co.jp/ir/library/securities.html
Fact Books https://www.inpex.co.jp/english/ir/library/factbook.html
Sustainability Reports https://www.inpex.co.jp/english/csr/csr/
Corporate Brochures (available in Japanese only)
https://www.inpex.co.jp/company/pdf/brochure.pdf
Corporate Website https://www.inpex.co.jp/english/

Our Goal

In editing this Annual Report, we have referred
to documents such as the International Integrated Reporting Council’s (IIRC) International
Integrated Reporting Framework and the
Guidance for Collaborative Value Creation issued by Japan’s Ministry of Economy, Tradeand Industry (METI), incorporating information
with the aim of straightforwardly conveying ourbusiness activities within the reporting period
f ro m b o t h f i n a n c i a l a n d n o n - f i n a n c i a lperspectives.
In fiscal 2020, we have steadily responded
to dramatic changes in the external environment, such as the spread of COVID-19 andcrude oil price declines. Going forward, we
recognize that changes towards a net zero carbon society will pose new challenges for us,
but we consider these challenges to be great
opportunities at the same time. By providing astable supply of diverse energy both domestically and internationally with a focus on cleaner
upstream businesses, we will continue to improve the enterprise value of the INPEX Group
as a whole, while contributing to stable energy
supply, environmental conservation, economic
and social development and more.
In this Annual Report, we have worked tomore concretely present our vision, value creation process, strengths, initiatives towards a
net zero carbon society, sustainability initiatives
and other topics.
This Annual Report is intended to function
as a communication tool contributing to dialogue with our stakeholders.
DISCLAIMER
Information contained in this Annual Report is
not an offer or a solicitation of an offer to buy orsell securities. You are requested to make investment decisions using your own judgment.
Although the Company has made sufficient
effort to ensure the accuracy of information
provided herein, the Company assumes no responsibility for any damages or liabilities including, but not limited to, those due toincorrect information or any other reason.

We aim to become a leading energy company serving
an essential role in global society by meetingthe energy needs of Japan andcountries around the world.

FORWARD-LOOKING STATEMENTSCONTENTSCONTENTS

02 INPEX’s Vision andValue Creation

02 Our Vision
04 Value Creation Process

06 Growth Strategy for
Value Creation

06 Message from the Representative Directors
08 Message from the President & CEO
16 Financial and Operating Highlights
18 Sustainability Highlights
20 Segment Overview
22 INPEX’s Business
26 INPEX’s Strengths
30 Featured Content:		Business Development Strategy- Towards a Net Zero Carbon Society by 2050
34	Progress Against Medium-term Business Plan
2018–2022

36 The Basis of our
Value Creation

36 Sustainability
44	
Directors, Audit & Supervisory Board Members
and Executive Officers
46	Outside Director and Outside Audit & Supervisory
Board Member Roundtable Discussion
48 Corporate Governance

52 Performance andFinancial Overview

52	
Message from the Senior Vice President,
Finance & Accounting
54 11-Year Financial Information
56 Project Overview by Region
66	Background Information: Oil and Gas
Accounting Policies and Practices
68	Management’s Discussion and Analysis ofFinancial Condition and Results of Operations
74	
Consolidated Financial Statements / Notes
94 Independent Auditor’s Report
96 Subsidiaries and Affiliates
98 Business Risks
107 Oil and Gas Reserves and Production Volume
110 Corporate Information

This Annual Report includes forward-looking information that reflects the Company’s plans andexpectations. Such forward-looking information
is based on the current assumptions and beliefsof the Company in light of the information currently available to it, and involves known andunknown risks, uncertainties and other factors.
Such risks, uncertainties and other factors could
cause the Company’s actual results, performance, achievements or financial position to bematerially different from any future results, performance, achievements or financial position
expressed or implied by such forward-looking
information. Such risks and uncertainties include, without limitations, fluctuations in thefollowing:	the price of and demand for crude oil andnatural gas;exchange rates; and	the costs associated with exploration,
development, production and other related
expenses.
The Company undertakes no obligation to
publicly update or revise any information inthis Annual Report (including forward-looking
information).
NOTES REGARDING FIGURES
Financial figures in this Annual Report havebeen, in principle, rounded to the nearest unit
(e.g., millions, billions) for convenience with an
exception of the figures on page 65 to page
109 where they have been, in principle, rounded down. The “Project Overview by Region”
section (starting on page 56) describes, in principle, the operating situation as of March 31,
2021. Figures in parentheses denote negative
amounts. The natural gas production volume
for projects in production is not the volume atwellheads but corresponds to the gas volume
sold to buyers. INPEX CORPORATION is listedon the First Section of the Tokyo Stock Exchange under the securities code 1605. The
Company is also included in the Nikkei Stock
Average (Nikkei 225) and the JPX-Nikkei Index
400 (JPX400).

INPEX’s Vision and Value Creation

Our Vision
INPEX’s Vision and Value Creation

Business Development Strategy

We aim to become a leading energy company serving an essential role in global society by meeting theenergy needs of Japan and countries around the world.

Towards a Net Zero Carbon Society by 2050
INPEX, under its new Japanese corporate name, will improve the enterprise value of the INPEX Group asa whole, while proactively responding to changes towards a net zero carbon society by providing a stablesupply of diverse energy in a cleaner form both domestically and internationally, and thereby contributing
to stable energy supply, environmental conservation, economic and social development and more.

Energy Situation in Japan and Worldwide

Acquires interest in ADCO
onshore concession

Naoetsu LNG Terminal iscompleted

NET ZERO
in absoluteemissions

30% OR MORE
reduction of net
carbon intensity

Scope 3
REDUCTION

Stable Supply of Energy

Early-stage
development& production

Gas shift

2018
Ichthys LNG Projectcommences production

2016

Reduce CO2
emissions fromupstream
operations

Resistanceto low oil
prices(CCUS*)

Enhanceand emphasize
renewableenergyinitiatives

Becominga Pioneerof Energy
Transformation

Developa hydrogenbusiness

Promotecarbon recycling
and cultivate new
business opportunities

Energysavings &improved
efficiency

Promote forest
conservation*CCUS: Carbon dioxide Capture, Utilization and Storage

Reinforcement of earning power
Hydrogen business expansion

2021

Active businessexpansion

Japanese
corporate nameis changed to
Kabushiki Kaisha
INPEX

Renewable
fields2019

Kashagan Oil Field
commences crude
oil shipments

work together with all relevant
stakeholders to address
challenges across the value chains

Five Business Pillars Towards
a Net Zero Carbon Society

A more resilient &cleaner upstream
business

Revised development planfor the Abadi LNG Projectis approved

2014
Extension of the concession agreement
for the Upper Zakum Oil Field

INPEX
CORPORATION
is founded

2030

Power from renewables + Hydrogenproduction utilizing surplus power

Extension of the production
sharing agreement for the
ACG oil fields

2013

2008

2050

Business Development
Strategy

CCUS andhydrogen

Business
implementation

Reduction of
CO2 from INPEX
assetsReinforcement of earning
power as core businessBusiness
establishment

Performance and Financial Overview

Ichthys LNG Project reaches
final investment decision

Scope 3

2017

2015

2012

Scope 1 + 2

The Basis of our Value Creation

warming to below 2°C compared to pre-industrial revolution levels and preferably to 1.5°C. In addition, majorcountries such as the EU nations, the U.K. and Japan
have announced so-called “net zero targets” to reducegreenhouse gas emissions to effectively zero in 2050.
The spread of COVID-19 has caused a stagnation ineconomic and social activities, leading to a decrease ingreenhouse gas emissions. This phenomenon has givenrise to policies simultaneously targeting economic recovery and climate change action, as well as those looking to build cleaner, less energy-consuming social
structures. We believe that progress in discussions toward a net zero carbon society will increase the risk offurther limiting oil and natural gas demand and amplify
the urgency of taking action toward a net zero carbon
society. In addition, demand for renewable energy is expected to grow significantly.
In order to contribute to the realization of the Paris
Agreement objectives in relation to climate change, INPEX will steadily realize its climate change response
goals including a net zero carbon emission by our company by 2050.

Scope 1 + 2

Growth Strategies for Value Creation

Energy demand fell in the short term due to a dramaticand large-scale downturn in the global economy causedby the spread of COVID-19 that surfaced in 2019. However, over the medium to long term, we anticipate a recovery and growth in energy demand due to factors
such as expanding global middle-class populations andeconomic growth mainly in emerging countries. Demand for oil and natural gas is also expected to gradually return to pre-pandemic levels in step with therecovery of the global economy. Over the medium tolong term, we expect to see strong demand primarily in
Asia, driven by an increase in the global population andeconomic growth.
Japan continues to face challenges in securing stableenergy supplies and increasing its independent development ratio of oil and natural gas to achieve this.
While the Japanese government’s independent development ratio target for fiscal 2030 is 40% or more, theactual ratio in fiscal 2019 was just under 35%. Although
this ratio is steadily increasing, the situation requires
sustained and long-term expansion measures, given thegrowth in global energy demand as well as geopoliticalrisks.
On the other hand, the Paris Agreement, adopted in2015, sets out a global long-term goal to limit global

Our Climate Change Response Goals

Business expansion, efficiency andlow-cost realization- Towords a Net Zero Carbon
Society by 2050

Vision 2040

Delivering Tomorrow’s Energy Solutions

Medium- to Long-term Vision of
INPEX

Ichthys and our growth over the next decade
Clarifies key initiatives and targets for the periodleading up to the Ichthys production start-up

2008

02

2012
INPEX CORPORATION Annual Report 2020

Medium-term Business Plan
2018–2022
Outlines specific targets and initiatives for the
five-year period between fiscal 2018 and fiscal 2022
For more on progress of theMedium-term Business Plan

2018

UpstreamfieldsSee page 34

2022

2050
INPEX CORPORATION Annual Report 202003

Value Creation Process
INPEX’s Vision and Value Creation

INPEX will proactively engage in energy structure reforms towards the realization of a net zero carbon society by 2050, while responding to the growing energy demands of Japan and the world and fulfilling thecompany’s responsibility for the development and stable supply of energy over the long term. By doing so,
INPEX will contribute a brighter future for society and sustainably increase its enterprise value.

Global Developments
Increasing momentum toward addressing
climate change
Policy to elevate Japan’s target independent
development ratio of oil and natural gas

 OVID-19 pandemic, deteriorating global
C
economyDramatic fluctuation in oil and natural gas
pricesExternal
Environment

Opportunities

 Risks of natural disasters, large-scale accidents, etc.
 Risk of failure in exploration, development or production

Oil and natural gas price fluctuations and exchange/interest
rate fluctuations
Climate change-related policy/regulatory, technical, market
and physical risks
 Country risks

Business Processes

Increasing importance of natural gas in energy transition
Opportunities for a more resilient and cleaner upstream businessVarious changes toward a net zero carbon society (e.g., increasing
demand for hydrogen, ammonia, CCUS and renewable energies)
Opportunities to develop new businesses that respond to society’s new
needs

Outputs

Outcomes

Energy supply indispensable
to people’s livelihoods

Economic Values

Growth Strategies for Value Creation

InputsRisks

Human Capital lobal and diverse
G
personnel
Number of employees:
3,163 (consolidated)

Investments for
exploration anddevelopment

Increasing
reserves

Social and Relationship
CapitalUpstream Oil andNatural Gas Business ood relationships withG
stakeholders in Japan andaround the world

Exploration, production and marketing of
crude oil and natural gas

Note: Results for the fiscal year ended December 31, 2020

Social Values

Accountingof revenue
attributableto sales rude oil, natural gas, air,Cwater, land, natural energy

Growth ofproduction
volumeFinancial Capital
Reduce CO2
emissions fromupstream operations(CCUS)

Manufactured CapitalP roduction, manufacturing
and supply facilities inJapan and around the world

Five Business Pillars Towards
a Net Zero Carbon Society
by 2050
See pages 25, 30-33

Develop a hydrogenbusiness

Environmental Values
Natural gas

Promote carbon
recycling and cultivate
new business
opportunities

Promote forest
conservation

Enhance and emphasize
renewable energy initiatives

Medium-term Business Plan 2018–2022

thousand barrels
per daySee page 34

 table supply of energy to society
S
Contribution to local communities andcreation of employment opportunities
Reduction of workplace injuries andprevention of major accidents
Increase in Japan’s independent
development ratio of oil and natural gas

1,265

million cubic feetper day

Renewable energy

 xpanding supply of natural gas asE
a cleaner source of energy
Cleaner upstream operations throughhydrogen/CCUS businesses
Reduction of greenhouse gas emissions
Conservation of biodiversity

Performance and Financial Overview

Strong financial baseEquity ratio: 59.0%,
D/E ratio: 45.1%
Long-term credit ratings(as of June 23, 2021):
Moody’s A2 (stable),
S&P A- (stable),
R&I AA- (stable)

331

The Basis of our Value Creation

Oil

See page 22

Natural Capital

Products

Generation of free cash flow
Shareholder returns
Improvement of enterprise value/
shareholder value

Contribution to Achieving the SDGs*

Power generated

371,998

MWh*SDGs: Sustainable Development Goals

Intellectual Capital echnical capabilities andTexperience to carry out
projects
Note: Results for the fiscal year ended December 31, 2020

04

INPEX CORPORATION Annual Report 2020

CSR Management

Identification ofmaterial issues

Corporate GovernanceSee page 36

See page 48

INPEX CORPORATION Annual Report 202005

Growth Strategy for Value Creation

Message from the Representative Directors
INPEX’s Vision and Value Creation
Growth Strategies for Value Creation

As an “all-new” INPEX, we will contribute to
the realization of a net zero carbon society
by being the driving force behind the stablesupply of diverse energy.
Toshiaki Kitamura
Representative Director
and Chairman

Takayuki Ueda
Representative Director,
President and CEO

06

INPEX CORPORATION Annual Report 2020

Performance and Financial Overview

Representative Director
and Chairman

The Basis of our Value Creation

In the fiscal year ended December 31, 2020, the worldwide economic stagnation caused by the
spread of COVID-19 since February 2020 and the breakdown of the OPEC+ production cut
agreement sent crude oil prices plummeting, resulting in a very severe performance by the Company. However, we have worked to reduce investments and costs, secure sufficient liquidity andfurther strengthen our financial base, making ourselves more resistant to dramatic changes in thebusiness environment.
In addition to these dramatic changes, in recent years there have been major economic andsocial changes, highlighted by issues related to climate change and the transition to a low-carbon society. INPEX has developed as a company built around upstream businesses consisting of
the exploration, development and production of crude oil and natural gas. It remains our important responsibility to meet the ever-growing demand for energy around the world and especiallyin Asia. On the other hand, however, we believe that it is necessary to adapt to this new era andactively promote efforts to prepare for a transformation in the energy sector. In light of thesechanges in our business environment and the progress in energy transformation initiatives, onJanuary 27, 2021, we announced our Business Development Strategy - Towards a Net Zero
Carbon Society by 2050, which outlines our climate change goals and our business strategy forachieving a net zero carbon society in the interest of advancing new businesses and management leveraging our strengths. Going forward, we will actively engage in new business fields
such as CCUS and hydrogen, while building on the foundations of our upstream businesses incrude oil and natural gas, so that our business activities are sustainable and aligned to environmental and social expectations and requirements. In order to promote the business development
strategy as a unified group, our Japanese corporate name was changed from Kokusai Sekiyu
Kaihatsu Teiseki Kabushiki Kaisha to Kabushiki Kaisha INPEX on April 1, 2021.
Under this new Japanese corporate name, we will strive to improve the enterprise value of the
INPEX Group as a whole, contributing to environmental conservation, economic and social
development and more by providing a stable supply of diverse energy both domestically andinternationally and in a cleaner form. We aim to be a pioneer in energy transformation that proactively responds to change towards a net zero carbon society. At the same time, at our global
oil and gas production sites, which form our core business, we will strive to ensure a stablesupply of energy by continuing production in a safe and stable manner, while taking a variety ofmeasures to prevent the further spread of COVID-19.
We would like to take this opportunity to ask for the continued and unwavering support andunderstanding of all our stakeholders.
Representative Director,
President and CEO

INPEX CORPORATION Annual Report 202007

Message from the President & CEO
INPEX’s Vision and Value Creation

The “all-new” INPEX Group will work as one todrive energy transformation.

Takayuki Ueda
Representative Director,
President and CEO

Growth Strategies for Value Creation

Movements toward a net zero carbon society by 2050 are intensifying across government and industrial
sectors.
In light of the changes in our business environment and progress in energy transformation initiatives, wewill actively engage in energy structure reforms to promote new businesses and new management leveraging our strengths, while continuing to fulfill our responsibility of providing a stable supply of energy.
In January 2021, we announced our Business Development Strategy - Towards a Net Zero Carbon
Society by 2050, and on April 1, 2021, our Japanese corporate name was changed from Kokusai Sekiyu
Kaihatsu Teiseki Kabushiki Kaisha to Kabushiki Kaisha INPEX.
We at the INPEX Group will work as one with a view to embrace this era of great change as an opportunity
to take a major leap forward.

Overview of the fiscal year ended December 31, 2020

During this fiscal year, the spread of COVID-19 caused
a worldwide stagnation of economic activity and a rapid
deterioration of global economic conditions. This
resulted in excess energy supply. The Brent crude oil
price, a benchmark index for the Group, started theperiod in the high US$60s per barrel but fell sharply
thereafter, caused by restrictions in the movement ofpeople, goods and services and a slowdown in economic
activity due to the spread of COVID-19 since February
2020, as well as by the breakdown of the OPEC+

The Basis of our Value Creation

The global economy slowed down due to the COVID-19 pandemic.
Oil prices fell, presenting a challenging business environment.
production cut agreement in March. Although the balance of supply and demand began to improve in mid2020, oil prices remained weak due to the resurgence of
COVID-19, primarily in Europe and the Americas. The
average Brent oil price during the fiscal year was US$43.2,
down 32.7% year on year. Meanwhile, with regard toforeign exchange rates, which also affect our businessperformance, the dollar weakened towards the end of
the fiscal year, and the average USD/JPY exchange rate
ended at ¥106.77, ¥2.26 higher year on year.

Performance and Financial Overview

Brent crude oil price/Exchange rate
Crude oil priceExchange rate

(US$/bbl)(Yen/US$)

140

140

120

120

100

100

80

80

60

60

40

40

20

20

0

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

0

Note: Data for 2021 are through to the end of March.

08

INPEX CORPORATION Annual Report 2020

INPEX CORPORATION Annual Report 202009

Message from the President
INPEX’s Vision and Value Creation

Corporate structure strengthened after falling into the red due to
one-off losses* Effective the previous fiscal year (April 1, 2019 to December 31, 2019), the Company changed its consolidated fiscal year-end from March 31 to December 31.
Rates of change in this document represent comparisons versus the same period of the previous fiscal year (January 1, 2019 to December 31, 2019).

we recorded a net loss attributable to owners of parentof ¥111.6 billion in the fiscal year, down from ¥167.3 billion during the same period of the previous fiscal year,
marking our first year-end loss since our integration in2008. Net income attributable to owners of parent, excluding the effects of one-off profit (loss) such as impairment losses, was ¥54.6 billion.
We paid out an annual dividend of ¥24 per sharebased on our shareholder return policy of issuing stabledividend payouts. We will continue to pay out stable

Growth Strategies for Value Creation

As for the consolidated financial results for the fiscal
year ended December 31, 2020, as mentioned earlier,our benchmark index of average Brent oil prices fell
sharply year on year* and, as a result, net sales decreased 34.2% year on year to ¥771.0 billion, operating
income fell 55.6% to ¥248.4 billion and recurring profit
decreased by 56.0% to ¥257.3 billion. In addition, due
to the recording of an impairment loss of ¥189.9 billion,

Net production volume comparison with major international oil companies(Thousand boe)

4,000
3,500
3,000
2,500

1,500
1,000
573

500
0

1

2

3

4

5

6

7

8

9

10

11

INPEX

13

14

15

16

17

Source:	Publicly available information of the following companies (in alphabetical order): Apache, BHP, BP, Chevron, ConocoPhillips, Eni, Equinor, ExxonMobil, Hess, Lukoil,
Marathon Oil, Occidental Petroleum, Repsol, Shell, Total, Woodside
Note:	All data as of December 31, 2020, except for BHP Billiton data being as of June 30, 2020 and INPEX data being as of December 31, 2020. INPEX data are inaccordance with the relevant SEC regulations. Production includes unconventional resources such as bitumen & synthetic oil. The portion attributable to noncontrolling interests is considered.

Performance and Financial Overview

Proved reserves volume comparison with major international oil companies

For our net production volume (combining crude oiland natural gas in barrels of oil equivalent), the daily
production volume for the fiscal year ended December
31, 2020 was approximately 573 thousand barrels, andthe corresponding volume for the fiscal year ending December 31, 2021 is expected to be approximately 570
thousand barrels. While we will continue to aim for thetargets set in our Medium-term Business Plan, we intend to focus not only on quantitative expansion but
also on qualitative growth, such as in technological capabilities. Proved reserves (combined crude oil and natural gas reserves in barrels of oil equivalent), a key
source of our future earnings, are expected to be approximately 3.73 billion barrels.

The Basis of our Value Creation

2,000

dividends and strengthen shareholder returns in stagesin accordance with the improvement in our performance.
During the period, we worked diligently to reduce investments and costs to build a robust corporate structure
enabling the stable continuation of business even ina low oil price environment. We exceeded our reduction
targets of over 20% in terms of development investment
and over 40% in terms of exploration investment vis-à-vis
the outlook as of May 2020, successfully cutting development and exploration investments by 37% and 64%,
respectively. Furthermore, we implemented measures tofurther strengthen our resilience in the interest of business continuity, responding to dramatic changes in thebusiness and management environment. These measures included securing sufficient liquidity on hand by
securing loans and strengthening our financial base.

(Million boe)

20,000Consolidated financial forecast for the fiscal year ending December 2021 and shareholder returns(as of May 13, 2021)

15,000We expect to post net sales of 1,055 billion yen and pay out an annual
dividend of 33 yen.

10,000

5,000

0

3,730

1

2

3

4

5

6

7

8

9

INPEX

11

12

13

14

15

16

17

Source:	Publicly available information of the following companies (in alphabetical order): Apache, BHP, BP, Chevron, ConocoPhillips, Eni, Equinor, ExxonMobil, Hess, Lukoil,
Marathon Oil, Occidental Petroleum, Repsol, Shell, Total, Woodside
Note:	All data as of December 31, 2020, except for BHP Billiton data being as of June 30, 2020 and INPEX data being as of December 31, 2020. INPEX data are inaccordance with the relevant SEC regulations. Most projects owned by INPEX including the portion attributable to no-controlling interests are considered in INPEX
reserves. INPEX reserves are evaluated internally, except for certain large capital projects which are outsourced to DeGolyer & MacNaughton. Reserves include
unconventional resources such as bitumen & synthetic oil.

10

INPEX CORPORATION Annual Report 2020

Due to the recovery of the crude oil price from levels at
the beginning of the fiscal year, INPEX revised its consolidated financial forecasts for the fiscal year ending December 2021 on May 13, 2021. Assuming a crude oil
price average of 60.30 US dollars per barrel and an exchange rate average of 107.5 Japanese yen against the
US dollar for the full year, we expect to generate net
sales of 1,055 billion yen and a net income of 140 billion
yen, as outlined in our consolidated financial forecasts forthe fiscal year ending December 2021. Regarding
dividend forecasts for the fiscal year ending December

2021, as the consolidated financial forecasts for the six
months ending June 30, 2021 and the fiscal year ending
December 31, 2021 have been revised upward, INPEX
expects the annual dividend for the current fiscal year toamount to 33 yen per common stock (16.5 yen interim
dividend and 16.5 yen year-end dividend), up 9 yen fromthe 24 yen per common stock dividend paid out last year.
This increase is in alignment with the shareholder return
policy outlined in the Medium-term Business Plan
2018-2022.

INPEX CORPORATION Annual Report 202011

Message from the President

We will optimize investments, costs and our portfolio tostrengthen our resilience to low oil prices. In addition,by conducting exploration and development workaround existing oil and gas fields and taking advantageof existing production facilities, we will shorten development periods and pursue production start-ups at an
early stage, making a strong push for more resilient upstream businesses.
In parallel, by promoting the Ichthys LNG Project inAustralia and the Abadi LNG Project in Indonesia, wewill advance the shift to natural gas, which is a cleaner
energy source. Furthermore, we will appropriately address the transition to a net zero carbon society by making our upstream businesses cleaner. This will beachieved through measures such as rigorous energy
saving initiatives and energy efficiency improvements.
For existing businesses, we will focus on projects in
our core business areas including Australia, Indonesia,
Abu Dhabi and Japan, whilst maintaining an awarenessof making operations more efficient and optimizing investments. In the fiscal year ended December 31, 2020,
the Ichthys LNG Project in Australia continued to operate smoothly, shipping 122 LNG cargoes. In the fiscal
year ending December 31, 2021, we expect the project
to ship approximately 10 cargoes per month, and wewill continue to drill production wells to maintain stableproduction and also install required facilities.
In the Abadi LNG Project in Indonesia, we signed
memorandums of understanding in 2020 with an

While COVID-19 continues to spread around the world,
we are able to continue stably producing crude oil andnatural gas thanks to measures taken to prevent the virus’s spread at production and operation sites the Company is involved in around the world. Furthermore,demand for oil and natural gas is expected to gradually
return to pre-pandemic levels in step with the recoveryof the global economy. Over the medium to long term,
we also believe that strong demand can be expectedprimarily in Asia, driven by an increase in the global
population and economic growth. Meanwhile, Japan
continues to face the challenge of increasing its ratio ofself-development of oil and natural gas to secure a stable source of energy.
As the response to global warming becomes a universal issue, discussions for a net zero carbon society
are making headway. Major countries such as the EU
nations, the U.K. and Japan have announced so-called“net zero targets,” aiming to reduce greenhouse gas
emissions to effectively zero in 2050. Under these circumstances, we anticipate the potential intensificationof a downward pressure on oil and natural gas demand,changes in demand owing to the shift to electric vehicles with the transition to a net-zero carbon society andthe significant increase in demand for renewableenergy.
We are carefully assessing the situation, recognizingthat it is important to continuously bolster our resilienceand improve our efficiency (in investment and portfolio
management) while minimizing risks associated with
crude oil prices fluctuations and other uncertainties. As
a company responsible for the stable supply of energy,
we are tasked with meeting the energy demands ofJapan and the world through our upstream oil and natural gas operations, which comprise our core business,while maintaining appropriate investment levels. In addition, as the energy transformation picks up pacetoward a net zero carbon society, we recognize that weourselves must actively pursue the development andutilization of various energy technologies such as hydrogen and CCUS.

The “all-new” INPEX Group will work as one to drive its Business
Development Strategy - Towards a Net Zero Carbon Society by 2050

12INPEX CORPORATION Annual Report 2020

In addition, our Japanese corporate name waschanged from Kokusai Sekiyu Kaihatsu Teiseki Kabushiki
Kaisha to Kabushiki Kaisha INPEX on April 1, 2021. By
universally adopting “INPEX,” a name well known outside Japan, we intend to promote a more unified groupmanagement as an integrated global brand in Japanand around the world. By providing a stable supply of
diverse and cleaner energy to Japan and the rest of theworld over the long term, we will contribute to the goals
outlined in the Sustainable Development Goals (SDGs)
related to energy, the environment, economic andsocial development and more.
Below, we present the two key points of the Business
Development Strategy: a stable supply of energy andgoals and initiatives towards a net zero carbon society
by 2050.

Please see pages 56 to 64 for our Project Overview by Region.
Performance and Financial Overview

In keeping with the long-term socio-economic outlook,in May 2018, we formulated our Vision 2040 and theMedium-term Business Plan 2018–2022. In January 2021,
we announced our Business Development Strategy- Towards a Net Zero Carbon Society by 2050, based on
the changes in our business environment as noted
above. Going forward, we will make this Business
Development Strategy a focal point, promoting more
resilient and cleaner operations of our upstream oil andnatural gas businesses and pursing the five new business pillars. By doing so, we will fulfill our two social
responsibilities of providing a stable supply of energy
and responding to climate change and will promoteenergy structure reforms towards the realization of a net
zero carbon society by 2050.

Indonesian government-owned electricity company,
a government-owned fertilizer company and a government-owned gas company regarding the long-term domestic supply of LNG and natural gas in Indonesia.
Although COVID-19 is expected to cause delays, we aremaking preparations for Front End Engineering and Design (FEED) work, such as acquiring a variety of local
data, with the aim of starting this work at an early stage.
We will continue to promote the Abadi LNG Project,aiming to start production in the latter half of the 2020s.
Meanwhile, we have maintained crude oil development
and production activities at our Abu Dhabi projects
consisting of four offshore oil fields and the ADCO Onshore Concession. We also commenced drilling operations at Abu Dhabi’s onshore exploration Block 4 in May
2021. In our domestic natural gas business, we continue
to steadily provide a stable supply of gas thanks to stable production operations at the Minami-Nagaoka Gas
Field in Niigata and the Naoetsu LNG Terminal as wellas our natural gas pipeline network.
For new projects, we undertake careful evaluations in
our selection of projects, such as pursuing exploration
opportunities with early production start-up potential
and aiming to enter businesses where we can becompetitive even in a low oil price environment. In parallel, we will continue to strengthen our efforts to
expand our global gas value chain in Japan and thegrowing markets of Asia. Furthermore, we will promote
carbon-neutral LNG marketing.

The Basis of our Value Creation

Management environment and INPEX’s direction towards 2050

Growth Strategies for Value Creation

1. Stable supply of energy

INPEX’s Vision and Value Creation

Business Development Strategy: Towards a Net Zero Carbon Society by 2050

INPEX CORPORATION Annual Report 202013

Message from the President

Please refer to our Sustainability Report 2021 for more information about our ESG initiatives.

*R EDD+ project (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries): An initiative seeking to prevent deforestation andforest degradation through forest management and increase carbon stock
through afforestation

The Basis of our Value Creation(1) Reduce CO2 emissions from upstream operations(Promotion of CCUS)
As an oil and natural gas development company, INPEX
will promote CCUS, working to reduce CO2 in upstream
businesses and supplying cleaner energy. INPEX will
also promote a shift to natural gas and carbon neutral
LNG marketing in conjunction with the efficient use ofenergy and implementation of energy saving measuresacross its entire business including exploration, development and production.
(2) Develop a hydrogen business
Envisioning the advent of a hydrogen society in the medium- to long-term, INPEX aims to establish a hydrogenbusiness as an energy producer and supplier.

(3) Enhance and emphasize renewable energy
initiatives
INPEX will accelerate its initiatives both in Japan andaround the world relating to geothermal power generation applying oil and gas development technologies aswell as offshore wind power generation, leveraging experience in the construction and operation of offshore
floating facilities gained at operations sites overseas.
(4) Promote carbon recycling and cultivate new
business opportunities
INPEX will promote carbon recycling with the aim ofsetting up business operations at an early stage, leveraging synergies with its oil and gas business operations.
Furthermore, it will swiftly pursue initiatives in new business fields with growth potential.
(5) Promote forest conservation
In addition to promoting projects targeting CO 2 absorption through forest conservation, INPEX will support
distinguished REDD+* projects.

As for climate change response, we have set and areworking to achieve goals toward a net zero carbon society by 2050. We are also strengthening our governancestructure on climate change response, assessing ourbusiness strategies, evaluating climate change risks andopportunities and taking action to manage greenhousegas (GHG) emissions. Furthermore, we are continuously
enhancing our information disclosure in line with recommendations from the Task Force on Climate-related
Financial Disclosures (TCFD).

Growth Strategies for Value Creation

We have set goals to address climate change including
achieving net zero in absolute emissions by 2050, in
contributing to the realization of the Paris Agreement’s
climate change-related goals.
Furthermore, we will focus our efforts on the following five business pillars to offer solutions that meet theneeds of society in an era highlighted by changes toward a net zero carbon society.

We also believe that building relationships of trustwith local communities where we do business serves asa foundation for our social license to operate. Whenstarting new business activities, we carry out impact assessments and take a variety of measures in advance tominimize the negative impact of our business on the local community. Based on the INPEX Group Human
Rights Policy, we also respect the human rights of people in our local communities and aim to contribute totheir economic and social development through open
and highly transparent dialogue with stakeholders.

INPEX’s Vision and Value Creation

2. Goals and initiatives towards a net zero carbon society by 2050

Please see pages 30 to 33 for more information about our Business
Development Strategy - Towards a Net Zero Carbon Society by 2050.

ESG: Initiatives to create value over the medium to long term

As a management foundation to fulfill our two social
responsibilities of providing a stable supply of energy
and responding to climate change, we will continue totake action in line with six material CSR issues of great
importance to us and our stakeholders: governance,compliance, HSE (health, safety and environment), local
communities, climate change response and employees.
As we do this, we will pursue sustainability and work tocreate value across the entire value chain. Based on our
Business Development Strategy, Towards a Net Zero
Carbon Society by 2050, we will increase the resilienceof our upstream businesses, continue to provide a stable supply of cleaner energy and further strengthen ourefforts addressing environmental, social and governance (ESG) issues.

14

INPEX CORPORATION Annual Report 2020

We recognize that enhancing corporate governanceis essential for transparent, fair, prompt and decisive decision-making in the interest of sustainable growth andimprovement of enterprise value over the medium tolong term. Based on this recognition, we continue toevaluate the effectiveness of our Board of Directors. In
terms of our recent efforts, we are updating our officers’
and directors’ remuneration system. This includes ascheme that incorporates ESG evaluations (including
climate change response) and HSE performance into
director remuneration as well as launching a stockbased remuneration system for officers, with the involvement of the Nomination and Compensation
Advisory Committee.

Performance and Financial Overview

Material CSR issues for building a sustainable managementfoundation

Together with our stakeholders,we will sustainably advance ourbusiness activities centered on our
Business Development Strategy
and fulfill our social responsibilities
of providing a stable supply of diverse energy in a cleaner form andaddressing climate change.
By doing so, we seek to achievesustainable growth and improved
enterprise value of the “all-new”
INPEX Group. We ask for the continued support and understandingof all our stakeholders.
Representative Director,
President and CEO

INPEX CORPORATION Annual Report 202015

Financial and Operating Highlights (Five-Year Comparative Graphs)

Profitability IndicesReserve/Production Indices

Net Sales
Crude oil (¥ billion)

Natural gas (¥ billion)

1,009.6

13.6

874.4

933.7

15.3
208.1

14.6

316.8

971.4

18.0
170.7

354.6

771.0

14.9

229.3

217.9

679.2

617.2

782.7

46.2

16.8

764.0

123.6

96.1

40.4

294.8

285.4

227.2

250.5
710.3

Crude oil
Natural gas (Million boe)
Reserve replacement ratio(3-year average) (%)
3,857

Net income (loss) attributable to owners of parent (¥ billion)
EBIDAX (¥ billion)

1,000.0

12.8
223.0

Net Proved Reserves (by product),
Reserve Replacement Ratio (3-year average)

Net Income (loss) Attributable to Owners of Parent,
EBIDAX (Earnings before interest, depreciation andamortization, and exploration)

Other (¥ billion)

505.5

3,264

3,304

1,121

1,094

321

246

2,143

1,110

Net Proved and Probable Reserves,
Reserves-to-Production Ratio
Probable reserves (Million boe)

4,086

4,010
1,146

1,030

362
2,747

2,210

2,864

246

2017/3

2018/3

2019/3

2019/122020/122016/32017/3

2018/3

2019/3

2019/122020/12

4,086

3,730

3,304

3,264

25.9

23.5

19.1

2,974

263

2,700

17.4

17.8

17.4

76

-111.7
2016/3

4,010

3,857

3,730

1,112

Proved reserves-to-production ratio (Years)

Growth Strategies for Value Creation

242.6

INPEX’s Vision and Value Creation

INPEX has changed its fiscal year-end from March 31 to December 31, effective from fiscal 2019.
The fiscal year ended December 31, 2019 is a transitional, nine-month accounting period from April 1, 2019 to December 31, 2019.

2016/32017/3

2018/3

2019/3

2019/122020/122016/32017/3

2018/3

2019/3

2019/122020/12EBIDAX = Net income (including non-controlling interests) + Deferred tax + (1 –Tax rate) × (Interest expense – Interest income) + Foreign exchange gain and loss
+ Depreciation and amortization + Amortization of goodwill + Recovery of recoverable accounts under production sharing (capital expenditures) + Exploration expenses + Provision for exploration projects + Provision for allowance forrecoverable accounts under production sharing – Gain on reversal of allowance forrecoverable accounts under production sharing + Impairment loss

• The reserves cover most of INPEX group projects including the equity-method affiliates. The reserves of projects which are expected to be invested a large amount andCash Flow from Operations

Average Expenses per BOE Produced, Exploration andDevelopment Cost per BOE (3-year average)

affect the Group’s future result materially are evaluated by DeGolyer & MacNaughton, and the others are done internally.

• The proved reserves are evaluated in accordance with SEC regulations.

Stability Indices
Cash flow from operations (¥ billion)

2,932.9 2,943.2 2,916.7 3,006.5 3,040.7
2,736.5
68.6

68.3

62.7

62.7

901.5
-239.3-8.1

2016/329.6
0.9

2017/3

943.9

422.5
11.8
2018/3

59.0

275.8

278.5

292.9

274.7

16.9

238.6

16.4

15.7

22.3

26.0

2019/3

2019/122020/12Natural gas (Thousand boed)

586
514

521
450

175

173

7.7

8.4

7.6

5.9

5.9

5.7

5.3

5.2

2016/32017/3

2018/3

2019/3

2019/122020/122016/32017/3

2018/3

2019/3

2019/122020/12

573

234

242

352

331

2019/122020/12

424

121

183.7

1,051.8

21.7

Crude oil

Average production cost per boe produced (Excluding royalty) (US$/boe)
Exploration and development cost per boe (3-year average) (US$/boe)

Net assets excluding non-controlling interests (¥ billion)
Net debt (¥ billion)
Equity ratio (%)
Net debt/Net total capital employed (%)

67.1

Net Production (by product, barrels of oil equivalents)

The Basis of our Value Creation

Net Assets Excluding Non-Controlling Interests,
Equity Ratio, Net Debt, Net Debt/Net Total Capital Employed

121

7.1
339

2016/3348

2017/3303

329

2018/3

2019/3

Performance and Financial Overview• Net assets excluding non-controlling interests = Net assets – Noncontrolling interests• Equity ratio = Net assets excluding non-controlling interests / Total assets• Net debt = Interest-bearing debt – Cash and cash equivalents – Time deposits– Certificate of deposits – Public bonds and corporate bonds and other debt
securities with determinable value – Long-term time deposits• Net debt / Net total capital employed = Net debt / (Net assets + Net debt)

Efficiency Indices

Performance Indices

Return on Equity (ROE)

Cash Dividend per Share, Payout Ratio

Price Earnings Ratio (PER), Price Book-Value Ratio (PBR)

Cash dividend per share (2nd quarter end) (Yen)
Cash dividend per share (Fiscal year-end) (Yen)
Payout ratio (%)

ROE (%)PER (Times)

PBR (Times)

Exploration Success Ratio (3-year average)
Exploration success ratio (3-year average) (%)

74.3
3.2
0.6

1.6

4.1

1.4

18

18

-3.9
2018/3

2019/3

2019/122020/12

ROE = Net income attributable to owners of parent / Average of net assets excluding non-controlling interests at the beginning and end of the year

16

INPEX CORPORATION Annual Report 2020

24
18

18
9

56.9

65.1

9

9

9

2016/32017/3

2018/3

45.3

12

15

9

9

2017/3

47.6

24
156.7

2016/3

77.0

30

34.6
16.0

12

9

12

36.5

35.5

2019/3

2019/122020/12

0.4

0.5

0.7

2016/32017/3

2018/3

13.4

—

0.5

0.5

0.3

2019/3

2019/122020/12

60.7

61.8

2019/3

2019/1243.8

21.0
2016/32017/3

2018/32020/12

No payout ratio is shown for the year ended 2020/12, as a net loss was recordedin this year.
INPEX CORPORATION Annual Report 202017

Sustainability Highlights
Sustainability Report

INPEX’s Vision and Value Creation

Please refer to our Sustainability Report 2021 for more information about our ESG performance data.

https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_ESGdata_IndependentAssurance.pdf

External Evaluation
Social Investment

LTIF, TRIR
LTIF

TRIR

Social Investment (¥ million)

2.24
1.74

1.78

1,714
1,345

1,408

2017/3

2018/3

2,196

1,615

0.11

2016/32017/30.28

0.23

2018/3

2019/30.32

0.26

2019/122020/122016/3

2019/3

2019/12Training Expenditure per Person (Unconsolidated)

CDP Climate Change 2020 score: A-C ertified Health and Productivity
Management Organization 2021 (White 500)

193

205

193

Female Managerial Employees Ratio (%)

4.9

207
151

2017/3

2018/3

2019/3

2019/122020/12MSCI ESG Leaders Indexes

STOXX® Global ESG Leaders Index elected as “Industry Mover 2021” in theS
S&P Global Sustainability Award 2021

MSCI Japan ESG Select Leaders Indexes

 CPI World ESG Equity, ECPI Global
E
Carbon Liquid, ECPI Global Developed
ESG Best in Class

Excellence Award in the 24th
Environment Communication Awards

15
6

3.7

2017/3

2018/3

2019/3

2019/122020/12 SCI Japan Empowering Women Index
M(WIN)

SOMPO Sustainability Index

Certified Silver in the 2020 PRIDE Index

THE INCLUSION OF INPEX CORPORATION IN ANY MSCIINDEX, AND THE USE OF MSCI LOGOS, TRADEMARKS,SERVICE MARKS OR INDEX NAMES HEREIN, DO NOTCONSTITUTE A SPONSORSHIP, ENDORSEMENT ORPROMOTION OF INPEX CORPORATION BY MSCI OR ANY OF
ITS AFFILIATES. THE MSCI INDEXES ARE THE EXCLUSIVEPROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMESAND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCIOR ITS AFFILIATES.

Directors (Inside)
Directors (Outside)
Ratio of Directors (Outside)

80

80

80

5

5

5

75

14

13
5

5.4

Performance and Financial Overview

Directors (Inside)
Directors (Outside)
Ratio of Directors (Outside)15

2016/3

5.6

Number and Ratio of Audit &Supervisory Board Members (Outside)

Number and Ratio of Directors (Outside)

14

3.3

5.1

The Basis of our Value Creation

217

6
5

6

36

40

40

39

43

10

9

9

9

8

8

2016/32017/3

2018/3

2019/3

2019/122020/1233

FTSE Blossom Japan Index

Female Managerial Employees Ratio (Consolidated)

Training Expenditure per Person (¥ thousand)5 021 Health & Productivity Stock2
Selection Program

2020/12* L TIF (Lost Time Injury Frequency): Rate of injury resulting in fatalities or lost time
per million hours worked.
 RIR (Total Recordable Injury Rate): Rate of total fatalities, lost work day cases, re*T
stricted work day cases, and medical treatment cases per million hours worked.

15

S&P/JPX Carbon Efficient Index

0.97

0.15

2016/3

 TSE4Good Developed Index,
F
FTSE4Good Japan Index

Growth Strategies for Value Creation

1.12

1.85

2,239

INPEX has engaged in active dialogue with stakeholders through information disclosure and responded to external
evaluations by third-party. The evaluations by external organizations and the major ESG Indexes for which INPEX has
been selected as a component stock are shown below.

4

4

4

4

1
2016/31
2017/31
2018/3

3
1
2019/3

80

80

5

5

4

4

1
2019/121
2020/12*2
 019/12 figures are for the period from January to December 2019 while the accounting period for the fiscal year ended December 31, 2019 is nine months from April to
December 2019.

18

INPEX CORPORATION Annual Report 2020

INPEX CORPORATION Annual Report 202019

Segment Overview(Fiscal year ended December 31, 2020)

OperatingincomeOperatingincomemillion

Net production

Proved reserves

Net production(BOE)(BOE per day)

(BOE)

(BOE per day)56

millionbarrels

41

thousandbarrels

18

millionbarrels

For more details see P. 59

LondonNur-Sultan(United Kingdom)

millionmillionGrowth Strategies for Value Creation(Norway)¥13,481(2,128)Net sales

million

Proved reserves

363

Oslo

Americas¥68,369¥4,481

Net sales

INPEX’s Vision and Value Creation

Eurasia

thousandbarrels

For more details see P. 63

Japan(Kazakhstan)

Net sales

NiigataTokyo(United Arab Emirates)

Proved reserves

Net production(BOE)(BOE per day)

137

24

millionbarrels

millionSan Antonio(USA)millionThe Basis of our Value Creation

Abu Dhabi

Operatingincome¥115,838¥14,341

Houston(USA)

thousandbarrels

Caracas(Venezuela)

For more details see P. 64

Singapore(Singapore)

Jakarta

Middle East & Africa
Net sales

OperatingincomeDarwin¥352,388¥186,408

Proved reserves

Net production(BOE)(BOE per day)

2,166

millionbarrels226

Performance and Financial Overview(Indonesia)(Australia)

Asia & Oceania

millionPerth

Net sales(Australia)

millionthousandbarrels

For more details see P. 61

Key group company headquarters and offices in Japan and overseas

OperatingincomeRio de Janeiro¥220,969¥56,522

Proved reserves

Net production(BOE)(BOE per day)

1,023

millionbarrels

250(Brazil)millionmillionthousandbarrels

For more details see P. 56

Note: Net Sales and operating income amounts are rounded down. Proved reserves and net production figures are rounded off.

20

INPEX CORPORATION Annual Report 2020

INPEX CORPORATION Annual Report 2020

21

INPEX’s Business

Oil And Natural Gas
E&P Activities

There are many methods for marketing crude oil linked to spot
prices (market prices established one time per transaction), thespot prices themselves being mainly decided based on crudeoil, which has become the transaction benchmark. Representative crude oil spot prices are those quoted for Middle East
Dubai crude, North Sea Brent crude and West Texas Intermediate (WTI) from the United States, to name but a few.
In contrast, as liquefied natural gas (LNG) projects requirelarge amount of investments, in many cases LNG is supplied
under a long-term contract between producers and buyers.
LNG tanker

Production
Major oil and natural gas
producing regions

The Basis of our Value Creation

We collect extensive informationon legal system and country risks
related to areas in which oil andnatural gas are expected to exist.
We then apply and bid for mining
rights and/or exploration and development rights and enter into
a contract for exploration anddevelopment.

LNG plant

Signing ceremony of a contract

2

Exploration

Drilling rig

3

AppraisalOnce the presence of oil and natural gas has been confirmed, we
drill appraisal wells to assess theextent of the oil and gas fields
and to evaluate the amount of reserves. In addition, we make comprehensive judgments regarding
the commercial viability of the
fields.
Reservoir evaluation (image)

22

INPEX CORPORATION Annual Report 2020

After a final investment decision(FID) has been made, steps aretaken to construct facilities to
produce and ship crude oil andnatural gas. This includes facilities
that separate resources into theirliquid and gaseous states to remove impurities and pipelines tofacilitate transportation. In addition, the drilling of production
wells is undertaken to extract
crude oil and natural gas.

Performance and Financial Overview

4

Development

In addition to geological surveys,
we utilize geophysical surveys
conducted through satellite images and seismic waves to assess
the potential subsurface accumulations of oil and natural gas. Furthermore, we drill exploratory
wells to confirm the presence ofoil and gas. The bit, a special drill
attached to the tip of the pipe,
drills through hard rock while digging into the ground.

5

The extracted oil and natural gas arerefined and processed. After separating
oil and removing impurities (e.g., acidgas, water), we ship natural gas that canbe used as a product.

1

Acquisition of Blocks

Growth Strategies for Value Creation

The business activities of the oil and gas industry canbe envisioned as the flow of a river. The upstream
consists of the development and production of oil
and natural gas. The midstream is where products aretransported. The downstream refers to refining andsales. Our mainstay business is to handle operationsin the upstream including the exploration, production
and marketing of crude oil and natural gas. As shownin the business flow on this page, upstream businessactivities can be further classified into the acquisitionof blocks, exploration, appraisal, development, production and sales.

6Marketing

INPEX’s Vision and Value Creation

INPEX has developed as a company built around its upstream business operations including the exploration, development and production of oil and natural gas.
While it remains our important responsibility to meet the ever-growing energy demand around theworld and especially in Asia, our current business environment is facing a wave of major economic andsocial changes, such as issues related to climate change and the transition to a low-carbon society. We
recognize that tackling these challenges will not be easy. However, we consider these challenges to begreat opportunities and are committed to actively promoting our business accordingly.

Facility construction

Where do crude oil and natural gas come from?
Crude oil and natural gas are thought to originate from organic matter, such as the remains of once-living organisms that accumulated at the bottom of seas and lakes, thatwas then subjected to extreme heat and pressure underground (organic origin theory).
Crude oil and natural gas that have formed deep underground are lighter than the waterin the earth, allowing them to gradually rise to the surface over a long period of time. If
the crude oil and natural gas encounter highly dense geological formations on the way
to the surface, however, deposits form that become oil and gas fields.

INPEX CORPORATION Annual Report 2020

23

INPEX’s BusinessBusiness Risks

See pages 98 to 106

Responding to risks of natural disasters, large-scale accidents, etc.
In our upstream oil and natural gas businesses, operational accidents, disasters, cyberattacks and the spread of infectious diseases such as COVID-19 present the risk of delay or suspension of operations. We are proactively conducting risk management,
including preparing an Emergency/Crisis Response Plan and conducting regular emergency response drills during ordinary
times, in order to enhance our ability to respond to emergency situations caused by major accidents and disasters. We have formulated a Business Continuity Plan (BCP) and review it as appropriate to prevent the suspension of key operations. In order toprevent major accidents such as fires, explosions and large-scale oil spills, we ensure proper due diligence throughout eachphase of the project life cycle: exploration, development, production and abandonment.

We have introduced guidelines for economic and risk assessments. After recognizing major risks, we analyze and examine
whether to take on new projects. The INPEX Value Assurance System (IVAS) Committee also works as a cross-organizational
mechanism mainly for technical evaluations at each project phase, such as exploration, evaluation and development.
Our expected average annual investment over the next five years is between ¥250 to ¥300 billion, assuming an oil price of
US$50 to US$60. Over the medium term, we plan to invest approximately ¥20 to ¥30 billion of that annually to develop the fivebusiness pillars in our Business Development Strategy - Towards a Net Zero Carbon Society by 2050. When making investment
decisions, we emphasize volume as well as value and strategic fit. At the same time, we also consider divestment opportunities
to comprehensively optimize our portfolio.

Policy on financing

 esponding to oil and natural gas priceR
fluctuations and exchange/interest rate
fluctuations

Crude oil priceExchange rate

(US$/bbl)

Five Business
Pillars

Initiatives

Phase

Under
demonstration

CO2EOR1 demonstration tests in Niigata, Japan
CCUS/CCS
Businesses

CCUS (CO2EOR) demonstration tests at one of INPEX’s oil fields in Japan.

Ichthys LNG Project CCS
INPEX is evaluating the feasibility of sequestering CO2 captured at the INPEX-operated Ichthys LNG plantin Darwin, Australia. An appropriate injection site is to be selected based on a detailed evaluation.

Concept of integrated hydrogen business test project in Kashiwazaki, Niigata, JapanINPEX plans to demonstrate the feasibility of a business model utilizing natural gas from INPEX assets to
produce carbon-free hydrogen and secure a greater volume of resources through a natural gas reforming
process and conducting CCUS with the CO2 emitted from this reforming process.

Hydrogen
Business

Clean ammonia business in Abu Dhabi
INPEX is evaluating opportunities to produce hydrogen and ammonia from natural gas produced in Abu
Dhabi. CO2 from the gas reforming process will be utilized in CCUS / EOR at an onshore Abu Dhabi oil field
in which INPEX has a participating interest, with the objective of realizing clean ammonia.

Carbon-free hydrogen business outside JapanINPEX is examining ways to participate in a hydrogen liquefaction and offloading business to develop its
own hydrogen business abroad.

Sarulla Geothermal IPP Project in Indonesia, one of the world’s largest geothermal
projects
Launched commercial operations at Unit 1 (110MW) in March 2017, at Unit 2 (110MW) in October 2017 andat Unit 3 (110MW) in May 2018, with plans for additional development.

Renewable
EnergyBusiness

Geothermal resource surveys for geothermal power plant construction in the Oyasu
area of Akita Prefecture and the Amemasu area of Hokkaido, Japan
Continue to explore the possibility of commercialization in the Amemasudake area. Environmental
assessments are ongoing in the Oyasu area, with flow tests conducted in 2020 (currently under assessment).

INPEX Mega Solar Joetsu in Joetsu, Niigata, Japan
Expected power generation is approximately 5.33 million kilowatt-hours annually, enough energy to power
about 1,600 homes for a year in Japan.

(Yen/US$)

140

140

120

120

Fixed-bottom offshore wind power projects in Noshiro, Mitane and Oga in Akita
Prefecture, Japan

100

100

Participated in a consortium for the implementation of fixed-bottom offshore wind power projects in
Noshiro, Mitane and Oga in Akita Prefecture, Japan, the projects are currently in open bidding.

80

80

60

60

Establishment of methanation testing facility at the Koshijihara Plant located within
INPEX’s Nagaoka Field Office

40

40

20

20

0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

0

CarbonRecycling and
New Business
Opportunities

Note: Data for 2021 are through to the end of March.

Responding to climate change risks
In order to achieve the goals of the Paris Agreement, and amid growing interest in addressing global climate change, efforts arebeing made globally to reduce greenhouse gas (GHG) emissions, which are recognized as the cause of climate change andglobal warming. The Group identifies, assesses and manages climate change risks in line with the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD).

Responding to country risks
To handle country risks in the countries where we operate, we have established guidelines that include the maximum target
amount of accumulated investment balance for high-risk countries.

In this NEDO2-sanctioned project to develop technologies that enable the effective utilization of CO2, wehave established a testing facility that produces methane from CO2 and hydrogen. Trial runs have been
completed and various tests are underway.

Performance validation of solar hydrogen production in Darwin, Australia by ARPChem,
in which INPEX participates
Constructed a solar hydrogen production test facility in Darwin, Australia and began its performance
validation.

INPEX-Terra Drone Intelligent Drone Plan
Invested in Terra Drone Corp. and commenced joint studies towards the realization of the plan.

Support of Rimba Raya REDD+3 Project in Indonesia
ForestConservation
Project

Through this support, we expect to acquire 5 million tons of carbon credits over the next five years.

Eucalyptus tree planting and management project in southwestern Australia
Promote CO2 absorption through eucalyptus tree planting and management.

Savanna fire management program in Northern Territory, Australia

INPEX CORPORATION Annual Report 2020

Underconsideration
Underconsideration
Underconsideration
In commercial
operation
Surveysunderway
In commercial
operation
Underconsideration

Trial runs
underway

Tests ongoing
Underconsideration
In progress
In progress
In progress

Reduce greenhouse gas emissions by strategically controlling savanna fires*1 Enhanced Oil Recovery. In this document EOR includes Enhanced Gas Recovery.
*2 New Energy and Industrial Technology Development Organization (Japan)*3 Reducing Emissions from Deforestation and forest Degradation – a concept defined in the Cancun Agreements (2010) aiming to reduce of CO2 emissions by controllingdeforestation and deterioration through forest management and actively increasing carbon stock through afforestation.

Business Development Strategy: Five Business Pillars

24

Under
consideration

Performance and Financial Overview

A large percentage of crude oil prices and natural gas prices
in overseas businesses are determined by international market conditions. In addition, these prices fluctuate in
response to the influence of a variety of factors including
supply and demand as well as trends and conditions of the
global economy and financial markets. For the fiscal year
ending December 31, 2021, as of the beginning of theperiod, a fluctuation of US$1 in the price of one barrel ofcrude oil is estimated to have an impact of approximately¥6.6 billion annually in net income, and a fluctuation of ¥1 in
the USD/JPY exchange rate is estimated to have an impact
of approximately ¥2 billion annually in net income. Although
the Company is taking measures to reduce a portion of therisks associated with fluctuations in foreign currency exchange rates, interest rates and oil prices, these measures
by no means cover all possible risks and as a result, theimpact of fluctuations cannot be completely eliminated.

Brent crude oil price/Exchange rate

We will actively promote five business pillars in order to offer solutions responding to the needs ofsociety in an era of reform towards a net zero carbon society.

The Basis of our Value Creation

Oil and natural gas exploration and development projects, as well as the construction of natural gas supply infrastructure, require significant funding. The Group relies on cash flow derived from internal reserves, together with external sources, to procure funds. The Group’s basic policy is to utilize internal cash flow and external equity financing to fund exploration projects andto utilize internal cash flow and external loans to fund development projects and the construction of natural gas infrastructure.
For the Ichthys LNG Project, we utilize loans from project financing by domestic and overseas export credit agencies and commercial banks. In oil and natural gas upstream businesses, it is common for companies to form business partnerships for the purpose of dispersing risks and financial commitments.
In fiscal 2020, the Group received loans from the Development Bank of Japan and Japan Bank for International Cooperation
for the purpose of further strengthening its financial base in a low oil price environment. The Group also took measures to reduce financial costs such as refinancing its project finance contracts for the Ichthys LNG Project.
In March 2021, the Group issued corporate bonds aiming to diversify its financing methods.

Five Business Pillars under the Business Development
Strategy - Towards a Net Zero Carbon Society by 2050

Growth Strategies for Value Creation

Decisions on investment

INPEX’s Vision and Value Creation

Risk management in upstream oil and natural
gas businesses

See page 32

INPEX CORPORATION Annual Report 2020

25

INPEX’s Strengths

6 Strengths
of INPEXII Technical capabilities to carry out projects
Leveraging our technological capabilities and experience cultivated in the Ichthys LNG Project, we will continue tostrengthen our technological capabilities in oil and natural gas projects, and aim to develop and apply these totechnologies addressing climate change.

As a technical leader, INPEX will develop and strengthen “technologicalcapabilities to continue and optimize its oil and natural gas projects” and“technological capabilities to address climate change.”
Technology Roadmap 2018

Maintain and improve existing
technologies

Carbon Cycle(Next CUUS)(CCUS, Renewable Energy)

Low Carbon Technologies

CO2EOR

Sustain Value

Stable Operation(Safety, Efficiency, Cost Reduction)

LNG

Dissolved-in-Water type
Natural Gas

Next EORThe Basis of our Value Creation

INPEX has a highly competitive global project portfolio, primarily in its core business areas of Australia, Abu Dhabi, Indonesia and Japan, and is working to further enhance its corporate value by engaging in various projects and achieving strategic project portfolio flexibility.
Also, by promoting the Ichthys LNG Project in Australia and the Abadi LNG Project in Indonesia, we will advancethe shift to natural gas, which is a cleaner energy source. In addition, we will appropriately address the transition to a
net zero carbon society by making our upstream businesses cleaner. This will be achieved through measures such as
rigorous energy saving initiatives and energy efficiency improvements.

Tight Reservoir
Development

Realize Value

Drilling & Completion
Integrated Reservoir Characterization
Productivity and Recovery
Improvement
Subsea Production System(Design, Construction &Operation)

Exploration Technologies

A highly competitive project portfolio

Emerging

Raising to essential
technology

Create ValueI

Next Challenges

Growth Strategies for Value Creation

Core TechnoIogies

Deep Water Development

I A highly competitive project portfolio
II Technical capabilities to carry out projects
Diverse human resources experienced in exploration,IIIdevelopment, operations, marketing and other areas
IV Close partnerships with oil-producing countries
Steady growth in cash flow and a solid and stableV
financial base
VI Support from the government of JapanINPEX’s Vision and Value Creation

INPEX will leverage its strengths to promote more resilient, cleaner upstream oil and natural gas businesses, and proactively engage in energy structure reforms towards the realization of a net zero carbon society
by 2050, which we see as both a challenge and an opportunity. By doing so, we will aim for sustainablegrowth and improvement in enterprise value.

Digital Transformation

Leveraging digital technology for lean and resilient culture

Strengthening of Technology infrastructure

Development of technical human resources, knowledge creation/sharing/utilization, Technical standards/guidelines
dissemination and expansion, climate changeJapan

Abu DhabiIndonesia

Turning our core technologies built up in conventional projects into specialized
technologies

We will steadily maintain and improve core technologies indispensable to our conventional E&P business while actively incorporating advancements and innovations of such technologies worldwide. In addition, we will nurture the LNG-related technologies
acquired through the development of Ichthys and operations of the Naoetsu LNG Terminal as well as tight reservoir development
technologies acquired through the development of oil and gas fields in Japan and overseas.

Next Challenge

Challenging current technical issues, conducting demonstrations
and building new core technologies

Performance and Financial Overview

A highly competitive project portfolio
centered on our core business areas ofAustralia, Abu Dhabi, Indonesia andJapanCore Technologies

We will continue to work on upstream technologies such as the development of deepwater oil and gas fields and the improvement of the rate of CO2 enhanced oil recovery (EOR) and incorporate these into our core technologies. We will also explore
renewable energy solutions such as offshore wind power generation, Carbon dioxide Capture and Storage (CCS) and Carbon
dioxide Capture and Utilization (CCU) and build these into our core technologies.

Australia

Major projects in our core business areas

Emerging

Technologies for the future

We will continue to develop technologies of the future that will help shape the future energy environment. Such future technologies include: more efficient development of water-soluble natural gas since huge domestic reserves are known to exist; further
research on recovery improvement technologies, such as improved water flooding technology and chemical flooding
technology; and Enhanced Oil Recovery (EOR) technology using micro-organisms. In addition, we will pursue studies on Carbon
Dioxide Capture, Utilization and Storage (CCUS) for the further reduction of and innovative utilization of carbon dioxide.

Digital Transformation Building a resilient corporate structure
Abu Dhabi
Onshore oil fields (Abu Dhabi
Onshore Concession; inproduction), offshore oil fields(Upper Zakum, Lower Zakum,
Satah and Umm Al-Dalkh oil
fields; in production)

26

INPEX CORPORATION Annual Report 2020

Australia
Ichthys LNG Project(in production phase)Indonesia

Japan

Abadi LNG Project(in preparation for development)

Minami-Nagaoka Gas Field,
one of Japan’s largest gas fields(in production); 1,500-km trunk
pipeline; Naoetsu LNG
Terminal

By maximizing the application of digital transformation in its various technologies, INPEX will work to further improve operational efficiency and build a resilient corporate structure. In 2021, we invested in Terra Drone Corp., an air mobility startup, andbegan planning towards the realization of the INPEX-Terra Drone Intelligent Drone Plan.
Business Development Strategy: Five Business Pillars

See page 32

INPEX CORPORATION Annual Report 2020

27

INPEX’s Strengths
Promoting diversity & inclusion

In order to constantly strengthen responsible management, INPEX as a global organization values workforce diversity
and the development of employees who share INPEX Values* on a global level. To achieve this, through discussion
among HR divisions located around the world, we formulated the INPEX HR VISION, which is comprised of four key
elements. HR activities based on these elements are implemented from a global perspective, linking these with development and performance maximization for each employee, as well as team performance to contribute to becoming ahighly competitive organization that offers job satisfaction.
* https://www.inpex.co.jp/english/company/value.html

 mployee satisfaction and opportunity forEgrowthTotal Reward

1 2
3 4

TalentAttraction andEngagement

Organization
EffectivenessMaximize team performance throughHR Management Process orkforce planning and organization review
W
Optimized staffing planning within theorganization

INPEX HR VISION
Development of future leaders andglobal workforce capability
Development of future leaders
Talent management cycle
Diversified career development programs

Focus onPeopleDevelopment

Support business strategy with worldclass functional expertiseHR
Excellence ffective, innovative, and trusted HR processesEand systems
Develop HR professionals
Collaborate globally and share best practices

Human resources development curriculum
Conceptual skills / Human skills

Career design(self-actualization)(logical thinking; task-formation and problemsolving skills; management; leadership;
interpersonal skills)

Career training

Grade-specific training

For 30 year-olds

Managerial employee training (M-3)

Support for younger employees

S-3 training(career/skill development)

J-1 training (for administrative staff) /J-2 training (for GSE (Global Staff Experts))

GSP (Global Staff Professional)
technical employee skill map interview

Third-year follow-up training

GSP corporate employee careerinterviewMentor/supporter systems

First-year follow-up training

Group training for new graduates

Business-practice training
GSP technical employee training
GSP corporate employee training
GSE overseas personnel
development system
Domestic/overseas seminars
and conferences
Training for new technicalemployees

Self-development assistanceLine manager training (1) (2) (3)Business skill training

General Manager training

For 40 year-olds

Study overseas
HR development for leaders

For 55 year-olds

Technical skills(specialized knowledge and experience; work
skills [including language skills])

We have received a silver certification
for the second consecutive year fromWork with Pride, an assessment
indicator for initiatives to help sexual
minorities.

IV Close partnerships with oil-producing countries
In Abu Dhabi, based on our long-standing relationship of trust with the Abu Dhabi government and ADNOC (AbuDhabi National Oil Company), we have acquired and extended interests in the oil fields with significant reserves.
We launched business activities in our core business areas of Australia, Abu Dhabi, Indonesia and Japan in 1986,
1973, 1966 and 1941, respectively, and have built long-term relationships with various stakeholders in each country, including governments.

V Steady growth in cash flow and a solid and stable financial base
As of the end of fiscal 2020, we continued to maintain abundant liquidity on hand with a balance of cash on handamounting to approximately ¥200 billion, and continued to maintain commitment lines with sufficient volume andduration from core banks.
We also announced that we will issue corporate bonds in 2021 for the first time for purposes including the diversification of our financing methods.
We will leverage these to spearhead major projects as operator (for certain projects) in our core business areas ofAustralia, Abu Dhabi, Indonesia and Japan, as well as to conduct strategic investments in research and development
in new areas, working to further increase our enterprise value.

Performance and Financial Overview

INPEX provides a curriculum combining e-learning, hands-on training focused on overseas assignments and grouptraining designed to cultivate mindsets and improve skills necessary for working at INPEX so that employees can constantly contribute to its business over the long term and continuously improve themselves. INPEX provides grade-specific training according to the required roles, responsibilities and capabilities of each employee category, grade andposition. In addition, as practical training for younger employees, the Company offers opportunities such as training atoverseas offices and studying at overseas specialized training institutions so that younger employees can work actively
in an international business environment. It also conducts on-the-job training programs at its corporate headquarters
for local employees hired at overseas offices, promoting interpersonal exchange and cultivating a shared global
awareness.
In addition, INPEX conducts 360-degree surveys, awareness surveys, organizational diagnoses and other measures
on a regular basis to maintain and improve its organizational strength. It has also established systems for in-house recruitment and assignment of multiple roles, supporting its employees in working with autonomy, developing their capabilities and promoting innovation.

We are also
advancing initiatives
to promote theactive participationof women.

The Basis of our Value Creation

Human resources and organizational development

At the INPEX Group, “diversity” refers to all the differences thatexist between its people and businesses. These include race,
gender, sexual orientation, gender identity, age, beliefs, religion,
personal background, disabilities and care responsibility as well
as differences in people’s knowledge and experiences. “Inclusion”
means creating a workplace and relationships in which everyone
can feel valued and respected.
Going forward, we plan to push ahead with diversity and inclusion (D&I) and improve capabilities across the organization toraise the general appeal of INPEX as a company and receive
greater recognition from the global community.
Specific initiatives in 2020 include a number of efforts to promote D&I from a diverse set of viewpoints: conducting online
training for superiors with subordinates who have children; online
LGBT training; and online social gatherings using chat functions
for employees with hearing difficulties and more. In recent years,
we have introduced a system for working from home and a flextime work system company-wide, enabling flexible working styles
that suit each employee’s individual circumstances.
In 2021, we plan to hold in-house seminars on unconscious
bias and psychological safety, and we will work to create an environment where diverse human resources can maximize their abilities with greater peace of mind.

Growth Strategies for Value Creation

Workforce diversity and global employees who share common values forbuilding the foundation for sustainable growth
Make INPEX the best place to work –“the employer of choice”

INPEX’s Vision and Value Creation

human resources experienced in exploration, development, operations,
III Diverse
marketing and other areas

VI Support from the government of Japan
We will utilize financial support from Japan Oil, Gas and Metals National Corporation (JOGMEC), Japan Bank forInternational Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI), and others in advancing oil andnatural gas upstream projects presenting significant risk and requiring significant investment over a long period oftime, while receiving high-level support from the Japanese government on resource diplomacy.
In addition, we will cooperate on the development of policy frameworks for efforts toward a net zero carbon society
by 2050 and make appropriate use of policy support from agencies including NEDO and JOGMEC to ensure speed
and efficiency.

To form a common understanding of business among employees and using this to gain organizational thinking skills and deliver results as an organization (gain the ability
to execute and adapt using grade-specific training based on a foundation of common understanding)

28

INPEX CORPORATION Annual Report 2020

INPEX CORPORATION Annual Report 2020

29

INPEX will actively promote five business pillars to offer solutions that meet the needs of society.

Featured ContentG eothermal:
Japan & Indonesia
Wind:
Fixed-bottom offshore
project in Akita, Japan, aim
to commercialize floating
offshore wind initiatives

Basic Management Policy
INPEX will proactively engage in energy structure reforms towards the realizationof a net zero carbon society by 2050, while responding to the growing energy
demands of Japan and the world and fulfilling the company’s responsibility for

Stable Supply of Energy

Promotecarbon recycling
and cultivate new
business opportunities
Promote forest
conservation

 upport of Rimba RayaS
REDD+ project in Indonesia

Business Milestones
Early-stage
development& production

INPEX will accelerate a shift to natural gas andcontinue to enhance initiatives for the expansionof its global gas value chain in Japan and thegrowing markets of Asia. Furthermore, it will promote carbon-neutral LNG marketing, etc.

2021

Resistanceto low oil
pricesBusiness implementation

A More Resilient &Cleaner Upstream
Business
Energysavings &efficiency

Gas shift

2050

Geothermal

GeothermalWind

Additional
development ofSarulla project(Indonesia)

Business expansion

Experience building
in offshore fixedbottom sector

Entry into
offshore
floating sector

Business expansion

Reinforcement of earning power
Hydrogen business expansion

Power fromrenewables +Renewable
Hydrogenfieldsproduction utilizing
surplus power

CCUS and hydrogen
Reduction of CO2 from INPEX assets

Goals and Initiatives Towards a Net Zero Carbon Society

Abu
Dhabi

Hydrogen

Business establishment

Reinforcement of earning power ascore business

Commercialization(Processing CO2 emitted
by other companies)

Commercialization

Business expansion
efficiency and lowcost realization

Performance and Financial Overview

Integrated
demonstration
tests in Japan

CCUS

INPEX will set climate change response goals to contribute to the realization of the Paris Agreement objectives in relation to climate change.

Active business expansion

Operations
start-up at Oyasu(Akita), etc.

Ichthys2

Developa hydrogenbusiness

The Basis of our Value Creation

INPEX will continue to position its upstream business as its core business and will work to fulfill its
two social responsibilities of providing a stablesupply of energy and responding to climatechange by promoting more resilient and cleaner
operations.

Becominga Pioneerof Energy
Transformation

 oncept of Integrated
C
Hydrogen Business
Test Project inKashiwazaki, Niigata,Japan
Clean Ammonia
Business in Abu Dhabi
Carbon-free hydrogenbusiness outside Japan

Growth Strategies for Value Creation

1(CCUS)

Enhanceand emphasize
renewableenergyinitiativesM ethanation:
Scale up in stages towardcommercialization
Artificial photosynthesis
New fields:
Drones, methane cracking,carbon materials businessthe development and stable supply of energy over the long-term.

C O2EOR demonstration testsin Niigata, Japan, etc.
Ichthys LNG Project CCS

Reduce CO2
emissions fromupstream
operations

INPEX’s Vision and Value Creation

Business Development Strategy- Towards a Net Zero Carbon Society by 2050

(Developing hydrogenvalue chain)

Upstream fields

Outlook on Cash Allocation

30

Scope 1 + 2

Scope 1 + 2

Scope 3

2050

2030

NET ZERO
in absoluteemissions1

30% OR MORE
reduction of net
carbon intensity2

Scope 3
REDUCTION
work together with all relevant
stakeholders to address challenges
across entire value chains

About Scopes 1, 2, and 3

Scope 1: Direct emissions from sources owned or controlled by the reporting company
Scope 2: Indirect emissions from electricity, steam, heat and cooling purchased and consumed by the reporting company
Scope 3: All other indirect emissions generated in the reporting company’s value chain(s)1: INPEX equity share basis

2: In comparison with 2019

INPEX CORPORATION Annual Report 2020

The average scale of annual investment for the next five years is expected to be about ¥250 to ¥350 billion(assuming a crude oil price of US$50 to US$60).
Of this, we plan to invest about ¥20 to ¥30 billion annually in the five business pillars over the medium term.
Average scale of annual investment over the next five years(Scale of investment based on US$50–US$60 oil price assumption)

Approx.
¥20–30 billion
annually

Approx. ¥250–300 billion annually

Outlook to invest about ¥20 to ¥30 billion annually in thefive business pillars over the medium term

INPEX CORPORATION Annual Report 202031

Business Development Strategy: Five Business Pillars
Enhance and Emphasize Renewable Energy Initiatives

Taking advantage of its track record and technical expertise in CCUS (Japan’s first CCUS project commenced at INPEX’s Kubiki Oil Field in Niigata in 1988), INPEX seeks to adopt CCUS solutions to safely store and efficiently utilize
CO2 in Japan and overseas including at the Ichthys LNG Project in Australia. INPEX will promote a shift to natural
gas and carbon neutral LNG marketing in conjunction with the efficient use of energy and implementation of energy saving measures across its entire business including exploration, development and production.

CO2EOR demonstration testin Niigata, Japan, etc.

Ichthys LNG Project CCS

Approx. 890 km

An appropriate injection site
is to be selected based ona detailed evaluation.

 he demonstration tests will consist of drilling two
T
new wells in 2022, analyzing reservoir core samples
and conducting CO2 injection tests. The tests are expected to boost the application of CCUS technologies in Japan as well as CO 2EOR technologies at
INPEX’s upstream assets overseas.

DarwinOfficeTimor Sea

Ichthys Field

Darwin
Northern
Territory

Ichthys gas-condensate field location• Browse Basin, Australian North West Shelf• Approximately 200 km offshore Western
Australia

Australia
Perth Office

INPEX will accelerate its initiatives both in Japan and around the world relating to geothermal power generation
applying oil and gas development technologies, as well as offshore wind leveraging experience in the construction
and operation of offshore floating facilities gained at operations sites overseas.

Geothermal

Offshore wind

H igh potential in Japanand Indonesia where INPEX has considerable
business experience.
Applying oil and gas development technologies
such as geological / geophysical surveys anddrilling.
Sarulla Geothermal Independent
Planning further develop- Power Producer (IPP*) Project
ment of Sarulla in Indonesia, one of the world’s largest geothermal projects.
Domestic track record of conducting development studies,
exploratory drilling and flow tests in the Oyasu area of Akita
Prefecture and the Amemasu area in Hokkaido, Japan.

Plans to realize fixed-bottom wind power project
offshore Noshiro, Mitane
and Oga in Akita Prefecture, Japan.
Ability to apply business
management experienceof designing and operating floating structures for
Generic image of offshore wind power
crude oil and natural gas
production at Ichthys and elsewhere.
P lans to create a floating offshore wind power business,
which has advantages for first movers, leveraging INPEX’s
strengths.

Growth Strategies for Value Creation

INPEX is evaluating the feasibility of sequestering of CO2 captured at
the INPEX-operated Ichthys
100 200
LNG plant in Darwin, Australia.
km km

INPEX plans to conduct CCUS (CO2EOR) demonstration tests at one of its oil fields in Niigata, Japan, applying EOR recovery improvement technology (CO2
foam technology) being developed by the company.

INPEX’s Vision and Value Creation

Reduce CO2 Emissions from Upstream Operations (CCUS)* Independent power producer

Promote Carbon Recycling and Cultivate New Business Opportunities
Develop a Hydrogen Business tilize natural gas from INPEX assets to produce carbon-free hydrogen and secure greater resource levels through a natUural gas reforming process and conducting CCUS with the CO2 emitted from this reforming process.
Enhance R&D activities to establish a hydrogen value chain in collaboration with external companies and organizations.
Aim to create a hydrogen society at an early stage through collaborative cross-sector projects on the social implementation of hydrogen as a member of the Japan Hydrogen Association.

Concept of Integrated Hydrogen Business Test Project in Kashiwazaki, Niigata, Japan
Production

Production

Artificial photosynthesis(towards the supply of carbon-free methane)(towards the supply of hydrogen derived from renewables) lans to complete basicPtechnical development infiscal 2021, scale up thetest facility in stages while
implementing cost reduction measures and achievecommercialization beyond
2030.

Generation

Testing facilities at the Koshijihara Plant(Niigata) (a NEDO project)

Pipeline

H2

Gas

Heat

Minami-Nagaoka Gas Field

Participating in the Japan Technological Research Association of Artificial Photosynthetic Chemical Process(ARPChem) and in chargeof technical development
for production of solar hydrogen through catalytic
reaction.
Steady implementation of
R&D with aims to ultimately achieve 10% solar Artificial photosynthesis panels
energy conversion effi- installed in Darwin, Australia
ciency; plans to evaluate
practical application.

Performance and Financial Overview

A n integrated “all-in-one”
demonstration test is plannedin Niigata, Japan, taking advantage of INPEX’s upstream
technologies and domestic
natural gas supply infrastructure. INPEX will demonstratea hydrogen business model
delivering hydrogen produced at INPEX’s overseas
natural gas assets to Japan.

Acceleration of methanation business

The Basis of our Value Creation

Envisioning the advent of a hydrogen era, INPEX aims to expand its energy business to include the production andsupply of hydrogen.

INPEX will promote carbon recycling with the aim of setting up business operations at an early stage, leveraging
synergies with its oil and gas business operations.

Gas

EOR

Hydrogen Sales

DAC*

CO2

Crude
oil

CO2

CO2

CO2

Core

H2

Advanced*Direct Air Capture

INPEX’s Depleting Gas Fields

Advanced Technologies

Market Development

Clean ammonia business in Abu Dhabi

Carbon-free hydrogen business outside Japan

INPEX is evaluating opportunities to produce hydrogen andammonia from natural gas produced in Abu Dhabi. CO2 fromthe gas reforming process will be utilized in CCUS / EOR at
an onshore Abu Dhabi oil field in which INPEX has a participating interest, with the objective of realizing cleanammonia.
The ammonia is to be imported to Japan using marine vessels and supplied to Japanese utilities as clean fuel for power
plants, contributing to the reduction of CO2 emissions.
A feasibility study is being proposed to ADNOC (UAE) anddiscussions with ADNOC and domestic partners are ongoing(as of 2021).

INPEX is examining ways to participate in a hydrogen liquefaction and offloading business to develop its own hydrogenbusiness abroad.
INPEX is making use of knowledge and experience in natural
gas liquefaction (LNG).

Hydrogen
Production

Liquefaction

MarineTransportation

Use

INPEX will swiftly pursue initiatives in new business fields showing signs of growth.
Futurebusiness
prospects

Improved operational stability and security through pipeline management utilizing drones
Introduction of DX relating to energy businesses
Development of methane direct cracking technologies; development of technologies to directly crack methane
into hydrogen and carbon
Carbon materials business; effective use of carbon extracted from the direct cracking of CO2
Development of CO2 extraction, processing and utilization technologies

Promote Forest Conservation
INPEX is working to support distinguished forest conservation projects that contribute to climate change response, biodiversity conservation, and improved living standards for local communities through CO2 absorption from forest conservation.
In February 2021, we established an agreement with InfiniteEARTH to acquire fivemillion tons of carbon credits over five years by supporting the Rimba Raya Biodiversity Reserve REDD+ Project in Indonesia. This is a 30-year project to protect approximately 65,000 hectares of peat forest in central Kalimantan in Indonesia.
Introductory video
https://infinite-earth.com/inpex

32

INPEX CORPORATION Annual Report 2020

INPEX CORPORATION Annual Report 202033

(3) Investment for growth

In May 2018, INPEX formulated its Medium-term Business Plan 2018–2022: Growth & Value Creation,laying out initiatives and targets over the five-year period between fiscal 2018 and fiscal 2022. INPEX iscommitted to achieving the targets set out under the Plan.

FY 2019/3
Results(1st year of theMedium-term
Business Plan)

Financial target
FY 2019/3
Results(1st year of theMedium-term
Business Plan)$70.86(US$/ barrel)

Exchange rate

(3rd year of theMedium-term
Business Plan)$64.27FY 2021/12*
Outlook$43.21

FY 2022/12
Targets$60.00$60.3¥107.5¥110.00¥971.4 billion ¥1,000.0 billion¥771.0 billion ¥1,055.0 billion

Around ¥1,300.0 billion¥96.1 billion¥123.6 billion¥-111.7 billion¥140.0 billion

Around ¥150 billion

424 KBOED

586 KBOED

573 KBOED

570 KBOED

700 KBOED¥110.93(JPY/USD)

Net sales(9 months)(2nd year of theMedium-term
Business Plan)FY 2020/12
Results

Net income attributableto owner of parent
Net production
volume¥108.66¥106.77

Development
expenditure
Exploration
expenditure
Other capital
expenditure
Total expenditure otal INPEX net loans including the off-balanced net
Tloans of the Ichthys IJV amounted to approximately¥2.3 trillion as of the end of December 2019 andapproximately ¥2.1 trillion as of the end of December 2020.

Net debt (¥ billion)(¥ billion)

901.5

1,000.0
750.0

67.1

68.6

943.9

62.7

1,051.8 (%)
100
75

62.7

Dividend (commemorative dividend)
Dividend payout ratio (RHS)

(¥)

¥33

36

 nhance shareholder returns by incrementallyE
improving dividends in line with earnings growth

24

65.1

(%)

100

0

75

¥24
6
36.5

18

6

¥24
50

35.5

34.4
25

18

18

24

24

2018/3

2019/3

2019/122020/122021/12¥3.7 billion¥2.7 billion¥2.8 billion¥8.0 billion

0

Investment for Growth forthe 5 year period¥1.7 trillion¥488.4 billion ¥243.2 billion ¥180.8 billion ¥255.0 billion
Total Expenditure in 4 years: ¥1167.4 billion (forecast)

FY2019/3, FY2019/12 and FY2020/12 Results

FY 2021/12 Initiatives & Outlook(First, Second and Third Years of the Mediumterm Business Plan)(Fourth Year of the Medium-term Business Plan)

Ichthys LNG
Project

A chieved rapid and steady
ramp-up; continued stableproduction

Continue stable production and accumulate technical and project
management knowledge andexperience

Abadi LNG
Project

P reparations to commence
FEED in progressP repare to commence FEED inprogress

Abu Dhabi
Oil Fields

Continued development work
to increase production capacity

Continue development work to increase production capacity

Exploration

P rogress in Abu Dhabi, Iraq,
Norway and Gulf of Mexico,
etc.; continued studies in thepriority exploration areas anda c q u i re d n e w e x p l o r a t i o n
blocks (Abu Dhabi, Australia
and Norway)M aintain progress in Abu Dhabi,
Iraq, Norway and Gulf of Mexico,
etc.; continue studies in the priority
exploration areas and acquire new
exploration blocks

Domestic

 pprox. 2.07 billion m3 of natuA
ral gas sold pprox. 2.11 billion m 3 of naturalA
gas sales

Overseas

Continued LNG/gas marketingfor FID on Abadi LNG Projectand initiatives to create new
business for natural gas demand generation

C ontinue LNG/gas marketing for
FID on Abadi LNG Project and initiatives to create new business fornatural gas demand generation

Indonesia: Sarulla Geothermal Independent
Power Producer (IPP) Project continued operation at total rated capacity of approximately
330MW
J oined a consortium for a fixed-bottom windproject offshore Noshiro, Mitane and Oga in Akita Prefecture, Japan
C ontinued fundamental research of methane
synthesis technology

Promote geothermal power generation business. Proactively enter wind
power generation businessPromote renewable energy and carbon recycling
Complete fundamental research of
the methane synthesis technology;
proceed to next stage

Reinforcementof Renewable
Energy Initiatives(forecast)* The dividend payout ratio for the fiscal year ended December 31, 2020 is notavailable due to net loss.

INPEX CORPORATION Annual Report 2020

Development of
Global Gas Value
Chain Business¥30
30¥16.0 billion

Performance and Financial Overview

2019/3 2019/12 2020/12

2018/3

Dividend (ordinary dividend)
Dividend (dividend increase)

Payout ratio of 30% or higher

34

Sustainable
Growth of Oil
and Natural Gas
E&P Activities-25

Annual Dividends per Share and Dividend Payout Ratio aintain stable dividends not falling below ¥24 perMshare¥10.7 billion

0-239.32017/3¥18.8 billion

25

29.6

0

¥13.7 billion

50

250.0

FY 2022/12
Targets¥471.0 billion ¥221.7 billion ¥167.2 billion ¥231.0 billion

59.0

422.5

2016/3

Shareholder returns during the period covered by
the Medium-term Business Plan

68.3

500.0

-250.0(2) Shareholder returns

Equity ratio (%)

FY 2021/12*
Outlook

The Basis of our Value Creation

Allocate cash flow from operations and others over the Medium-term Business Plan period (five years) in the following
order of priority: (1) debt reduction, (2) shareholder returns, (3) investment for growth.

 teadily reduce debt by working to make repayS
ments, such as for Ichthys LNG project finance loans.

(3rd year of theMedium-term
Business Plan)

Progress in achieving the three business targets

Cash allocation policy, actual allocation and outlook

Net Debt and Equity Ratio(9 months)(2nd year of theMedium-term
Business Plan)FY 2020/12
Results* Outlook as of February 10, 2021

* Outlook as of May 13,2021(1) Debt reduction

FY 2019/12
Results

Growth Strategies for Value Creation

Brent crude oil price

FY 2019/12
Results

INPEX’s Vision and Value Creation

Progress Against Medium-term Business Plan
2018-2022* In addition to the initiatives & outlook listed in the table, INPEX will strengthen and make cleaner its upstream business and promote initiatives towards a net zero carbon
society, its five business pillars, as described on pages 30 to 33.

INPEX CORPORATION Annual Report 2020

35

The Basis of our Value Creation

Sustainability

Roles and Responsibilities of CSR Committee

Country

Board of Directors

Management
Committee

Compliance Committee

United States

Corporate HSE Committee

Information Security
Committee
INPEX Value Assurance
System (IVAS) Committee

CSR Promotion Council
Climate Change
Strategy
Working Group

cycle to achieve continuous improvement. In FY2017,
we incorporated the perspectives of Sustainable Development Goals (SDGs) into the existing Key Tasks,
mapped the Key Tasks through a four-step prioritization
process (1. Issue identification and gap analysis, 2.
Stakeholder dialogues, 3. Issue prioritization, and 4.
Management review), and reevaluated the Key Tasks.
We will continue to review the Key Tasks on regularbasis.
* PDCA

Plan-Do-Check-Act

Importance for our
stakeholders

Area of priority

Importance for our business management(necessity/urgency of additional measures)

36

INPEX CORPORATION Annual Report 2020

Local
Communities

Climate Change

U.A.E.

Infection monitoring measures, including medical screening and body temperaturechecks for personnel entering operating sites
Establishment of procedures to respond and restore operations after in case of
COVID-19 infectionImplementation of a range of measures to mitigate the risk of infection at our
projects in Abu Dhabi, in accordance with the guidelines set forth by Abu Dhabi
National Oil Company (ADNOC). These include mandatory confirmation of negative
PCR test results prior to admittance to operating or other sites, as well as bodytemperature checks

INPEX assisted medical professionals and others who have dedicated themselves to the prevention of thefurther spread of COVID-19, and supported people in the local community who are experiencing difficulties. The following activities are included.
Country

Response Measures

Japan

Provision of N95 masks to Japanese Red Cross Society and local governments

Australia

Donation of A$ 30,000 to Foodbank NT to support emergency food provision in the
Northern Territory
Donation of A$ 100,000 to Menzies School of Health Research in the Northern
Territory to support COVID-19 response activities
Provision of masks to medical facilities and police agencies in Broome

Indonesia

 rovision of COVID-19 information posters, chemical protection suits, medical masks,Pand hand sanitizer to medical professionals in the Tanimbar Islands

Kazakhstan

 rovision of medical equipment and personal protective equipment to medicalPfacilities in Nur-Sultan in collaboration with other foreign companies in the country

United States

Donation through the Japan Business Association of Houston

Performance and Financial Overview

Matrix of Key Tasks

HSE

Restricted access to worksites except for core operating personnel
Securing standby personnel in preparation for the emergence of COVID-19 infection

The Basis of our Value Creation

ComplianceJapan(Shale Oil Project)

CSR Committee

Introducing special rotation and shift with a period of quarantine, implementation of

medical interviews and body temperature checks before coming on operating site
Introducing various restrictions and requirements for the LNG tankers and otherboats coming to terminal

Audit &
Supervisory Board

INPEX Advisory Committee

Response Measures(Ichthys LNG Project)

Australia

Nomination and Compensation
Advisory Committee

CSR Material Issues

GovernanceIn view of the global spread of COVID-19, INPEX has endeavored to continue steady operation and ensure stable supply of energy. At the same time, it has implemented a range of measures to prevent infection in our crude oil and gas production operations around the world, prioritizing the health and safety of
employees.

General Meeting of Shareholders

Identification of Material Issues and Prioritization Process
In April 2012, we identified five key issues among theseven core social responsibility subjects in ISO 26000 as
Material Issues of importance for us and our stakeholders. In May 2015, we reexamined the Material Issues
considering factors such as impacts of business activities associated with the progress of our key projects andchanges to stakeholder priorities. As a result, we redefined the Material Issues by adding the sixth issue,“Governance.” Furthermore, our actions that should beprioritized for each Material Issue have been defined as
Key Tasks, and have been incorporated into our PDCA*

Response to Novel Coronavirus Disease (COVID-19)

Growth Strategies for Value Creation

We disclose our executive management’s approach tosustainability, and have the CSR Committee chaired by
the Representative Director, President & CEO in place topromote groupwide and systematic sustainability practices. The CSR Committee members include the Representative Directors, the head of the General Administration
Division, and the head of the Corporate Strategy & Planning Division (Vice-Chair of the CSR Committee). The
Chairs of the Compliance Committee and the Corporate
HSE Committee also attend the CSR Committee meetings to facilitate collaboration with their respective committees. We have also created a groupwide consultation
system supported by the Climate Change Strategy Working Group and the CSR Promotion Council, a subdivisionof the CSR Committee comprising working-level members from various divisions.

INPEX’s Vision and Value Creation

As a management foundation to fulfill our two social responsibilities of providing a stable supply ofenergy and responding to climate change, we will continue to take action in line with six material CSR
issues of great importance to us and our stakeholders: governance, compliance, HSE (health, safety andenvironment), local communities, climate change response, and employees. As we do this, we will
pursue sustainability and work to create value across the entire value chain.

Employees

INPEX Key Tasks
Strengthen governance structure
Upgrade risk management system
Respect human rightComply with laws, prevent bribery andcorruptions
Conduct Environmental and Social
Impact Assessment (ESIA) in supply
chain
Prevent major incidents
Secure occupational health and safetyConserve biodiversity, manage water
resource appropriately

Assess and take measures to reduce
impact on local and indigenous
communities
Contribute to local economies
Promote renewable energy businessDevelop natural gas as a cleaner sourceof energy
Strengthen climate-related risk
management
Develop personnel and enhance themotivation of the workforce
Promote diversity

Plant operators with face shields and masks at
Naoetsu LNG Terminal, Japan

Donation to Foodbank NT in the Northern
Territory, Australia

Provision of medical goods in the Tanimbar
Islands, Indonesia

INPEX CORPORATION Annual Report 202037

Sustainability
INPEX’s Vision and Value Creation

Targets and Results of Material Issues
CSR MaterialIssuesGovernance

Key Tasks

FY 2021 Targets

Continued to implement a PDCA cycle to evaluate the effectiveness of the Board of Directors, and had evaluation performed by athird-party evaluation body
Setting discussion items for responding to low crude oil price andclimate change, aiming to effective discussion of the Board of
Directors
Held a roundtable meeting among the Directors for the exchangeof views, with participation of climate change experts
Made steady progress in preparation for response to revision ofJapan’s Corporate Governance Code and the restructuring of theTokyo Stock Exchange, which are scheduled for 2021
Discussed matters relating to director nomination and compensation, with appropriate support and advice by the Nomination andCompensation Advisory Committee, and resolved the policy for
determining individual directors’ compensation approved by the
Board of Directors
Enhanced company’s tax management system through the recruitment of tax specialists

Enhance of the corporate governance system through appropriate
operation of the Board of Directors and continue to implement
evaluation of the effectiveness of the Board of Directors. Continue
the PDCA cycle
Respond to the amendment of the Companies Act, the restructuring of the Tokyo Stock Exchange and the revision of Japan’s Corporate Governance Code
Discuss matters relating to director nomination and compensation,with appropriate support and advice by the Nomination and Compensation Advisory Committee
Implement global expansion of the tax governance structure

Upgrade risk
management
systemPromoted Business Continuity Management (BCM)* for earthquake scenario activities and conducted training and education at
corporate headquarters
Implemented and operated a crisis response system under the
Corporate Crisis Management Team for the novel coronavirus disease (COVID-19)

Promote corporate headquarters-based BCM activities for earthquake scenarios, provide BCM education and training for employees, and update corporate headquarters BCP*2 for highly virulent
infectious disease scenarios including measures to prevent the
spread of the novel coronavirus disease (COVID-19)
Implement and operate a crisis response system under the Corporate Crisis Management Team for the novel coronavirus disease(COVID-19)

Respect humanrightsPublished the UK Modern Slavery Act Statement FY 2019
Conducted human rights training for new recruits
Participated in the IPIECA human rights working group (ongoing)

Publish the UK and Australia Modern Slavery Act Statement FY
2020Continue human rights training for new employees
Strengthen human rights management

Conducted various types of compliance training, including harassment prevention training for managerial employees
Conducted ABC risk assessments at domestic offices in Japan
Launched and began operation of the INPEX Global Hotline
Participated in the anti-corruption working group of the Global
Compact Network Japan (ongoing)

Continue to provide information on compliance and conduct education and training programs (including harassment prevention
training for non-managerial employees at domestic offices inJapan)
Maintain initiatives aimed at bolstering global compliance systems(including continued operation of the INPEX Global Hotline, etc.)
Widely disseminate and strengthen the implementation of ABC
regulations (including continued implementation of training anddue diligence, etc.)
Continue to conduct ABC risk assessments at Japan and overseas
officesStrengthen
governancestructure1

Compliance
Comply withlaws, prevent
bribery andcorruption

Prevent major
incidents

HSE

Conduct
Environmental
and Social
ImpactAssessment(ESIA) in supply
chain

38

Continue to administer a supplier self-assessment questionnaire including human rights and anti-bribery and anti-corruption (ABC) tomajor domestic suppliers and contractors
Continue risk assessment including human rights, anti-bribery andanti-corruption (ABC) of major domestic suppliers and contractors,
and improve the methods used for risk assessment
Participate in the supply chain working group of the Global Compact Network Japan

Enhanced the Corporate HSE Management System (establishedand revised a total of 6 Corporate HSE Standards, supported thecreation of HSE engagement plans regarding the headquarters including non-operated projects, and established the Revised HSE
3rd Phase Mid-term Plan [FY2016-2022])
Improved HSE assurance and governance (participated in 6 HSE
reviews and conducted 2 risk-based audits at overseas sites
remotely)
Provided HSE technical support (implemented 11 technical support
operations)Ingrained HSE risk management to prevent major incidents and disasters (held 6 training sessions and workshops, etc., for enhancement of HSE risk management for operated projects, prepared anannual report on process safety leading indicators, assisted in theestablishment of safety cases both domestically and overseas, conducted HSEIA reviews, and conducted asset integrity management
and process safety assurance reviews of the domestic E&P business, domestic energy business, and Ichthys LNG Project)
Reinforced emergency and crisis response capability (implementing
countermeasures against COVID-19 using the Corporate Crisis
Management Team as the secretariat, conducted emergency level
3 crisis response exercises two times based on the scenarios of aserious accident at a business site of the domestic energy businessand a major earthquake striking directly beneath Tokyo metropolitan area, conducted functional training on 7 occasions, and revised
a security response plan for Abu Dhabi Office)Enhance the Corporate HSEMS (improve consistency between
company regulations and HSEMS documents and complete standardization of HSE standards)
Improve HSE assurance and governance (improve the consistency
and effectiveness of HSEMS through HSE reviews and risk-based
audits)Provide HSE technical support and foster HSE leaders (continue tosecure HSE resource and promote more efficient acquisition of
HSE competency through initiatives for comprehensive HSE training and exercises online)
Enhance process safety and asset integrity management (develop
a dashboard to promote visualization of management situation,enhance process safety and asset integrity management throughmeasurement of Tier 3 and Tier 4 leading indicators)
Reinforce emergency and crisis response capability (increase company-wide security and crisis management capabilities by reviewing the functions of the Corporate Crisis Management Team fromvarious perspectives including Crisis Management Team formation,
application software and exercises program)Strengthened HSE management at worksites (conducted safety
document survey and HSE Forum, but did not carry out management site visits because of travel restrictions in place due to the
COVID-19 pandemic)
Reduced the number of incidents (LTIF: 0.26 / TRIR: 2.24; completed online curriculum on life-saving rules and published HSE Flashand Learning from Incident [LFI] )Improved health promotion and maintenance program (developed
health risk resisters for INPEX Standards and gathered information
on COVID-19, issued an alert, and conducted survey led by thehealth and safety management division of the Corporate Crisis
Management Team)

Strengthen HSE management at worksites (develop and executean action plan for fostering HSE culture and HSE leadership basedon the results of the HSE culture survey)
Reduce the number of incidents (provide incident information andcauses in a timely manner using the newly introduced incident reporting system and prevent recurrence of similar incidents by measuring leading indicators such as implementation status of accident
remedies)
Strengthen health management (enhance initiatives for employee
health improvement, occupational health and safety and infection
control based on the INPEX Group Health Statement and Corporate Health Management Standard)

Executed and reviewed a Corporate Environmental Management
Plan including initiatives for biodiversity conservation and water
management
Conservation of biodiversity
Updated a protected areas database of adjacent to domestic andoverseas project sites
Implemented marine environmental impact assessments at domestic projects
Participated in forestation and biodiversity conservation activities
at domestic projects
Planned a simple survey of ecosystem of peripheral areas of domestic project sites (Nagaoka)
Implemented measures for specific invasive alien plant species atdomestic projects
Implemented survey on current situation of biodiversity at overseas
projects
Conducted biodiversity monitoring at overseas projects
Created a report about our biodiversity conservation activities
Water management
Conducted water stress assessments in project areas
Collected and analyzed data on water consumption in projects

Execute and review Corporate Environmental Management Plan
including initiatives for biodiversity conservation and water
management
Conservation of biodiversity
Update the protected areas database of areas adjacent to domestic and overseas project sites
Implement marine environmental impact assessments at domestic
projects
Implement measures for specific invasive alien plant species at domestic projects
Participate in forestation and biodiversity conservation activities atdomestic projects
Conduct an ecosystem survey in peripheral areas of domestic projects (Nagaoka)
Conduct surveys on current status of biodiversity at overseas
projects
Conduct biodiversity monitoring at overseas projects
Publish report on INPEX’s biodiversity conservation activities
Consider establishment of policy on biodiversity conservation
Water management
Update water stress assessments in project areas
Comprehend water balance, as well as collect and analyze water
consumption data of projects
Prepare report on the Group’s water usage and water risks
Consider establishment of policy on water risk management

INPEX CORPORATION Annual Report 2020

Key Tasks

FY 2021 Targets

Japan
Provided information on operational status and safety management of the Naoetsu LNG Terminal through community briefingsand public newsletters
Australia
Held more than 250 stakeholder engagement activities and provided more than 50 community updates
Received approximately 800 local operating area inquiries (of which
50 percent related to employment opportunities)
Indonesia
Conducted an environmental and social impact assessment, which
has been undertaken every year since 2018. In 2020, assessed theimpacts on communities during construction and operation phaseand likewise conducted impact assessment in regard to concern of
local communities

Japan
Maintain positive relationships with stakeholders through continuous dialogue, including appropriate response to inquiries from local communities and publication of newsletters
Australia
Maintain positive relationships with stakeholders and communities
through proactive and integrated engagement
Indonesia
Continue to implement environmental and social impact assessment while maintaining positive relationships with stakeholders

GlobalInvested approximately 2.2 billion yen in social contribution
initiatives
Australia
Supported more than 350 Larrakia individuals and facilities throughthe Larrakia Ichthys LNG Foundation Trust since its establishment
in 2018
Retained 25 Aboriginal and Torres Strait Islander employees including the Solid Pathways program participants
Employed more than 100 Aboriginal and Torres Strait Islander people through Ichthys LNG operations’ contractors
INPEX and contractors engaged 8 Aboriginal and Torres Strait Islander businesses for a total value of more than A$4 million

GlobalContinue investments for social contribution initiatives in responseto the needs of the local community
Australia
Ensure the success of the Larrakia Ichthys LNG Foundation Trust
Increase INPEX Australia’s direct employment of Aboriginal andTorres Strait Islander peoples to 36 people or three percent of employees by the end of 2021
Employ an average of 60 Aboriginal and Torres Strait Islander peoples through our Ichthys LNG operations’ contractors each year
from 2019 to 2021
Increase the number of Aboriginal and/or Torres Strait Islander majority owned businesses engaged by INPEX and its contracting
partners by 50 percent with a total contract value between 2019 to
2021 being greater than A$ 1 million

Develop natural
gas as a moreenvironmentallyfriendly sourceof energy

Achieved stable and efficient production operations in the Ichthys
LNG ProjectContinued a stable supply of natural gas and increased supply volume through the safe operation of gas fields, the Naoetsu LNG
Terminal and the approximately 1,500 km long, high-pressure gas
pipeline network in Japan
Implemented proposal activities to promote natural gas utilization
Promoted construction operations for local smart energy projects
using gas cogeneration facilities
Implemented carbon neutral gas proposal activities in Japan
Created a system for the inspection, data compilation and reporting on methane dissipation from equipment and machinery atbusiness sites in Japan

Continue to achieve stable and efficient production operations at
the Ichthys LNG Project
Maintain a stable supply of natural gas and increase supply volume
through the safe operation of gas fields, the Naoetsu LNG Terminal
and the approximately 1,500-kilometer long, high-pressure gas
pipeline network in JapanEngage in activities to promote natural gas utilization
Start commercial operation of local smart energy projects using
gas cogeneration facilities
Start sale of carbon neutral gas
Continue to improve management of GHG emissions, including
methaneStrengthen
climate-relatedriskmanagement

Formulated guidelines for the assessment and management of climate-related risks and opportunities
Transformed the Climate Change Strategy Working Group into anadvisory body of the CSR Committee
Disclosed greenhouse gas emissions on an equity share basis
Improved the company’s Carbon Disclosure Project (CDP) Climate
Change score (from B to A-)

Announce the company’s Business Development Strategy, and set
goals for climate change
Revise the company’s Corporate Position on Climate Change
Formulate Guidelines for Transactions and Management of VCUs*3
Formulate Guidelines for Management of Climate Change Goals

Ensured stable operation of photovoltaic power generation
facilities
Ensured stable operation of the Sarulla Geothermal IPP Project inIndonesia
Continued environmental impact assessments and conducted flow
tests with all production and reinjection wells in the Oyasu regionin Akita Prefecture. Continued surveys on geothermal resources at
Amemasudake, Hokkaido
Conducted preparation work toward final investment decision (FID)
for the domestic wind power businessContinued R&D of technologies that contribute to building anelectricity-hydrogen-methane value chain

Ensure stable operation of photovoltaic power generation facilities
Ensure stable operation at the Sarulla Geothermal IPP Project inIndonesia
Drive forward existing geothermal power generation business inJapan
Pursue new geothermal power business opportunities in Japan andoverseas. Continue environmental impact assessments and flow
tests with all production and reinjection wells in the Oyasu regionin Akita Prefecture
Pursue onshore and offshore wind power generation business opportunities in Japan
Pursue new offshore wind power generation business opportunities
in Japan and overseas
Continue R&D of technologies that contribute to building an electricity-hydrogen-methane value chain

Developpersonnel andenhance themotivation of
the workforce

GlobalContinued promoting of INPEX Values (including Values Award, etc.)
Conducted an engagement survey
Japan
Continued facilitation of internal job postingContinued providing career consultations for young corporate
employees
Continued interviewing with young technical employees for skill
mapping
Reduced overtime hours and continued encouragement of the taking of paid leave
Expanded business knowledge training through e-learningmaterials
Expanded “career design” training program
Implemented additional training for line managers
Converted some contract staff to regular employment
Introduced a return-to-work scheme
Introduced work-from-home arrangements
Began satellite office operation
Provided subordinate training seminars and remote-work focused
mental health awareness sessions
Provided health-related seminars on topics including smoking,dealing with back pain, stretching exercises to improve bodilyfunctions, etc.
Selected for 2020 Health & Productivity certification
Obtained certification in the large enterprise category of the 2020
Certified Health & Productivity Management Outstanding Organizations Recognition Program (White 500)

GlobalContinued promoting INPEX Values (including Values Award,group-wide promotion, etc.)
Japan
Continued facilitation of internal job postingContinued providing career consultations for young corporate
employees
Initiate career consultations for senior employees, and continue
skill mapping interviews for young technical employees
Continue reducing overtime hours and further encourage employees to take paid leave
Eliminate core time from the flextime working system
Introduce a new scheme for “internal side work”
Expanded work-from-home arrangements
Implement well-being workshops
Hold seminars on psychological safety
Introduce a training program for the next generation of leaders
Introduce online learning materials to enhance the English-language business skills of all employees
Introduce team-building initiatives
Continue providing health-related seminars
Realize continued Health & Productivity certification
Realize continued certification from the Certified Health & Productivity Management Outstanding Organizations Recognition
Program

Promotediversity

GlobalImplemented regular exchanging of views among diversity contacts at global offices
Japan
Continued training for managers of people with parental
responsibilities
Continued LGBT awareness training
Achieved Silver “Work with Pride 2020” certification
Held a chat-based social event for employees with impaired
hearingGlobalProvide opportunities for employees from overseas offices to gain
experience at other worksites
Japan
Continue measures based on our General Employer Action Plan topromote the active participation of womenDevelop policies for same-sex partners and their children to enjoy
the same treatment as the family members of other employees
Implement unconscious bias training

Assess and take
Local
Communities measures toreduce impact
on local andindigenous
communities

Strengthen the corporate governance structure, including enhancement of the supervisoryrole of the Board of Directors
Expand the discussion on business strategies based on Vision 2040, the Medium-term
Business Plan, and anticipatedfuture business development,
and monitor the progress
madeContribute to
local economies
Appropriate responses to andfull compliance with the laws andregulations of the areas in which
we operate, anti-bribery and anti-corruption (ABC) laws, judicial/administrative sanctions, international standards and ethics,
and respect for human rights
S t re n g t h e n g l o b a l h u m a nrights management structure
Strengthen supply chain risk
assessment and compliance

ClimateChangeUnder our commitment to the
HSE Policy, top management,
managers and staff implement
the process defined in the Corporate HSE Management
SystemThink, act and promote safety
culture as “Safety Number One”
on INPEX Values and aim toachieve zero incidents and prevent major incidents
Promote actions to achieve the
Revised HSE 3rd Phase Midterm Plan (FY2016-2022) including following actions:– Enhance effectiveness of the
Corporate HSE Management
System (HSEMS)– Improve HSE assurance andgovernance by continuous implementation of the risk management-based audits and
HSE reviews– Fulfill HSE technical support byutilizing HSE human resources
and foster HSE leaders by continuing to promote opportunities for acquiring HSE
competencies– Develop HSE activities that incorporate opinions fromworksites and improve HSEmanagement based on the results of the HSE culture survey– Thoroughly prevent major incidents by promoting Process
Safety management– Reduce incidents using leading indicators– Reinforce emergency and crisis
response capability– Reinforce GHG emissions control and environmental management as well as promotemanagement of social impacts– Implement initiatives based on
the INPEX Group Health Statement and Corporate HealthManagement Standard

Promoterenewableenergy business

Employees

Medium to Long-Term
Initiatives and Directions

FY 2020 Results

Contribute to regional development and the solution of social
issues through projects, respecting human rights and the cultures and customs of the areas inwhich we operate
Comprehend community
needs and conduct measuresthrough engagement withstakeholders in the areas inwhich we operate

Strengthen governance systems
and promote initiatives in the areas of business strategy, risk andopportunity assessment, andemission management, so as tocontribute towards the realization of the Paris Agreement
goals on climate change
Implement initiatives aimed at
the realization of the net zerocarbon society
Undertake continuous information disclosure in line with therecommendations of the Task
F o rc e o n C l i m a t e - re l a t e dFinancial Disclosures (TCFD)

Develop a corporate culture thatfacilitates self-initiative anda strong sense of values andpurpose for a diverse workforce
in accordance with INPEX Values

Performance and Financial Overview

Secureoccupational
health andsafetyAdministered a supplier self-assessment questionnaire including
human rights and ABC to major domestic suppliers andcontractors
Continued risk assessment including human rights, ABC of majordomestic suppliers and contractors
Administered a survey on the status of operator initiatives for human rights, and ABC, in relation to non-operated projects

Improve of the effectiveness of
the Board of Directors, appropriate information disclosure including dialogue with shareholders,
cooperation with stakeholders,and continue to enhance ofcorporate governance

CSR MaterialIssuesThe Basis of our Value Creation

Conduct
Environmental
and Social
ImpactAssessment(ESIA) in supply
chain

Medium to Long-Term
Initiatives and Directions

Growth Strategies for Value Creation

FY 2020 Results

Continue the promotion of INPEX Values
Develop an environment whichenables a diverse workforce todemonstrate their talent*1 Business Continuity Management
The activities undertaken by a company to develop and maintain a business continuity framework and ensure overall preparedness by the company through education and training initiatives*2 Business Continuity Plan
A proactive plan outlining the priority operations and steps to be taken in the event of a disaster to avoid or mitigate the risk of interruption to business activities*3 VCUs: Verified Carbon Units

INPEX CORPORATION Annual Report 202039

Sustainability

FeaturedContent

1

Climate Change Response

Planning

Describe the board’s oversight of climate-related risks andDisclose theorganization’s governancearound climate-relatedrisks and opportunities.

Describe the climate-related risks and opportunities theDisclose the actual andpotential impacts ofclimate-related risks andopportunities on theorganization’s businesses,
strategy, and financial
planning where suchinformation is material.

1 organization has identified over the short, medium and long term.
Describe the impact of climate-related risks and opportunities on

2 the organization’s businesses, strategy and financial planning.

Describe the resilience of the organization’s strategy, taking into

3 consideration different climate-related scenarios, including a 2°C
or lower scenario.

Disclose how theorganization identifies,
assesses and manages
climate-related risks.

Describe how processes for identifying, assessing, and managing

3 climate-related risks are integrated into the organization’s overallrisk management.

risk management process.

Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 GHG

2 emissions, and the related risks.

Describe the targets used by the organization to manage climate

3 change-related risks and opportunities and performance against
targets.

Sustainability Report40

Climate-related Risks and Opportunities
 Business Development Strategy - Towards a“
Net-Zero Carbon Society by 2050”
 he INPEX Low-Carbon Society Scenarios
TAssessment of Financial Impacts of Climaterelated Risks
Application of Internal Carbon Price ssessing and Managing Climate-related Risks
A
and Opportunities

1 change-related risks and opportunities in line with its strategy andDisclose the metrics andtargets used to assess
and manage relevant
climate-related risks andopportunities where suchinformation is material.

 essage from the Director in Charge of Climate
M
Change responseGovernance Framework for Climate Change
Response

Describe the organization’s processes for managing climate-

Disclose the metrics used by the organization to assess climate

Metrics andtargets

 overnance Framework for Climate ChangeG
Response

 ssessing and Managing Climate-related Risks
A
and Opportunities

2 related risks.

INPEX CORPORATION Annual Report 2020

2020

Scope 1*1(thousand tons- CO2e)

8,557

7,328

Scope 2*1(thousand tons- CO2e)

204

179

(kg-CO2e/boe)

41

35(thousand tons- CO2e)82,62677,3050.10

0.07

Net carbon intensity*2
Scope 3*3Methane emissions intensity*4

(%)*1 INPEX’s equity share emissions*2 Net carbon intensity including offset*3 F or details, please refer to our Sustainability
Report 2021
*4 Methane emissions intensity: calculated by methane emissions / natural gas production (%), using
the method adopted by Oil and Gas Climate
Initiative*5 The offsets include reduction contributions fromrenewable energy as well as CO 2 absorption
through forest conservation. Contributions fromrenewable energy are calculated based on the“Guidelines for Measurement, Reporting andVerification of GHG Emission Reductions in JBIC’s
GREEN” (the J-MRV Guidelines)

Regarding INPEX’s climate change measures, we establish qualitative goals in relation to risk management andinformation disclosure in accordance with the TCFD
Recommendations based on our “Medium-term Business Plan 2018-2022.” Level of achievements is evaluated and is reflected in the bonus for the director in

charge. Bonuses for representative directors and otherdirectors are also calculated by comprehensively taking
into considerations a range of factors such as ESG and
HSE performance including climate change response, in
addition to performance in main business operations
based on net income for the period.

Relevant section

Describe the organization’s processes for identifying and assessing

1 climate-related risks.

RiskManagement

2019

Risk Management System anaging the Environment and GHG Emissions
MClimate Change Response and Directors’Compensation
 SG Performance Data: GHG Emission
E
Management (Goals Management) fforts in Setting and Achieving Climate ChangeE
Goals

https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_ClimateChange.pdf

INPEX in principle assesses and manages climate-relatedrisks and opportunities in an annual cycle. The promotionof climate change measures across the Company is handled by the Climate Change Strategy Group within the
Corporate Strategy & Planning Unit of the Corporate
Strategy & Planning Division.
Regarding climate-related risks, the “Climate Change
Strategy Working Group (WG),” composed of about 30
members representing each of the divisions, implements
assessments and formulates preventive and mitigation
measures.

The process of risk assessment adheres to proceduresin ISO31000 (2009), an international risk management
standard. We update external and internal factors, share
INPEX situations with the WG members. We then identify
risks and analyze their causes, preventive measures, mitigation measures, and residual risks. The residual risks areassessed using the “Risk Assessment Matrix based on
TCFD Recommendations” created by INPEX.
Regarding climate-related opportunities, based on
the “Business Development Strategy”, we are working
across the whole Company through creation of new divisions such as the Hydrogen & CCUS DevelProcess of assessing and managing climate-related risks and opportunities
opment Office. We will add persons in
Decision-making
charge of these divisions as WG members,
Document Types
Authorities
and effectively, efficiently assess and man“Corporate Position
Resolution by the Boardage climate-related opportunities in INon Climate Change”
of Directors(disclosed)
PEX’s corporate policy.
Reporting to the Board of
Furthermore, WG evaluation results will
Directors and“INPEX’s
Executive Committeebediscussed in a CSR committee meeting
Current Initiatives”
CEO Approval(disclosed)
Pre-CSR Committee Meetingas “INPEX’s Current Initiatives” and reportDiscussion (once annually)ed to Executive Committee and the Board
Climate Change Strategy
of Directors upon receiving approval from
Preventive andWorking Group(once annually)
Mitigation Measures
the CEO.
Creating Proposals
for Preventive
and Mitigation Measures
Climate Change Strategy Group,
Corporate Strategy &Planning Unit

Monitoring Preventive and
Mitigation Measures

Implementing Preventive
and Mitigation Measures

Climate Change Strategy Group,
Corporate Strategy &Planning Unit

Divisions andSubsidiaries

INPEX CORPORATION Annual Report 2020

Performance and Financial Overview

Strategy

Describe management’s role in assessing and managing climate-

2 related risks and opportunities.

INPEX Emissions

Assessing and Managing Climate-related Risks and Opportunities* https://www.inpex.co.jp/english/csr/climatechange/pdf/20210216.pdf

1 opportunities.

intensity (methane emissions / natural gas production)
zero routine
at its current low level (about 0.1%), andflaring. Our net carbon intensity in 2020 was 35kgCO2-e/boe, a reduction of 15% compared to the previous year.

The Basis of our Value Creation

The “Corporate Position on Climate Change” (issued in December 2015, last revised in January 2021) is available on
our website*.
INPEX’s information disclosure related to climate change is in line with the TCFD Recommendations.
Please refer to our Sustainability Report 2021 for more details.

GovernanceSpecific countermeasures for achieving net-zero goals
promotion of Carbon Capture Utilization andincludestrengthening in renewable energy
Storage (CCUS),
promotion of CO2 absorption through forinitiatives,maintenance of methane emissions
est conservation,

Climate Change Response and Directors’ Compensation

Disclosure in line with TCFD Recommendations

Overview of the TCFD Recommendations

Efforts in achieving climate change response goals

Growth Strategies for Value Creation

In the “Business Development Strategy,” our corporate management policy towards a net-zero carbon society
by 2050 issued in January 2021, we determined our climate change goals, in which net-zero in Scope 1+2 emissions by 2050 is the main pillar for contributing to the achievement of the Paris Agreement goals. Concurrently,
we revised our “Corporate Position on Climate Change” to reflect these goals, and we will continue advancing
our initiatives to disclose climate -related information in accordance with the TCFD Recommendations.
Specifically, our Board of Directors seeks to maintain its oversight and expand its involvement in governance.
When developing our business strategies, we assess our ability to respond to multiple climate change scenarios, including the IEA WEO Sustainable Development Scenario (SDS: scenario consistent with the Paris Agreement’s goals of keeping average global temperature rise to well below 2 degrees Celsius compared topreindustrial levels, and pursuing efforts to limit it to 1.5 degrees Celsius), to evaluate our business portfolio.
Regarding risk and opportunity assessment, we have an annual assessment and management cycle where risks
and opportunities are explored in detail. We then implement measures and work plans developed from thatprocess. As for the management of GHG emissions, we will strive to manage the progress while advancing efforts to achieve established climate change goals.
Facilitating CO2 absorption through forest conservation is one of the five pillars ofachieving climate change goals. By supporting Indonesia’s Rimba Raya Biodiversity Reserve REDD+ Project, INPEX came to an agreement with InfiniteEARTH in February 2021 on acquiring 5 million tons of carbon
Kimihisa Kittaka
credits over 5 years starting in 2021.
Director, Senior Managing
We will continue advancing our efforts to achieve climate
Executive Officer,
Corporate Strategy &change goals.

INPEX’s Vision and Value Creation

MESSAGE FROM THE DIRECTOR IN CHARGE OF CLIMATE CHANGE RESPONSE

41

Featured
Content

Sustainability

2

Sustainability Initiatives

INPEX’s Vision and Value Creation

Initiatives for providing a stable supply of energy

in our Value Chain
Respect for Human Rights
Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_Compliance.pdf

Enhancement of Resilience of INPEX Group operations
Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_Governance.pdf

develop a Business Continuity Plan (BCP) to handle
crisis that a pandemic could cause. In response to thepandemic of the novel coronavirus COVID-19, following
a state of emergency declared by the Japanese government in April 2020, the aforementioned BCP and
response manuals were activated to enable smooth implementation of countermeasures such as working at
home.
And, we have endeavored to continue steady operation and ensure stable supply of energy through a rangeof measures to prevent infection in our crude oil andgas production operations around the world including
the INPEX operated Ichthys LNG Project in Australia,
the Minami-Nagaoka Gas Field and Naoetsu LNG
Terminal in Japan, prioritizing the health and safety of
employees.

Response to HSE (Health, Safety and Environment) Risks
Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_HSE.pdf

implement risk countermeasures, the situation of risk
management is regularly reported to headquarters, andis confirmed being at ALARP (As Low As Reasonably
Practicable) levels, and is reported to the Executive
Committee each quarter. In addition, reviews are regularly conducted to assure the integrity of facilities during
development and operation.
Prevention of Major Incidents

We place the highest priority in preventing workplace injuries
to all personnel working on our projects and engage in managing occupational safety risks through the HSEMS implementation. To drive HSE performance improvement, we monitor LTIF
and TRIR indicators to benchmark and move towards achieving
the top quartile of IOGP member companies.

To prevent major incidents or disasters as typified by fires, explosions, and large oil spills, we ensure proper due diligencethroughout each phase of the project life cycle: exploration, development, production, and abandonment. In order to handle
hazardous substances such as flammable liquids, comprehensive
Process Safety Management (PSM) is in place, a framework ofsystems and processes for robust design principles, good engineering, and sound operating and maintenance practices.

For projects in which we serve as the operator, we have included human rights clauses in the terms and conditions ofprocurement contract. In particular, for the Ichthys LNG
Project in Australia, we have performed human rights due
diligence on contractors by including human rights-related
questions in the tender document for the selection of newcontractors or suppliers.
For projects in which we participate as a non-operator,
we have performed questionnaire survey of the operatorsof each project in 2020 to confirm the status of their humanrights initiatives.

Local Communities
Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_LocalCommunities.pdf

Trusted relationships with the communities in which we
operate are fundamental to maintaining our social
license to operate. We build and maintain our relationships with our stakeholders through open and transparent engagement.
The INPEX Group Human Rights Policy outlines ourcommitment to recognize and respect the human rightsof people, including indigenous peoples, in our hostcommunities. INPEX’s commitment to working with
Aboriginal and Torres Strait Islander peoples in Australia
is set out in and implemented through the INPEX
Reconciliation Action Plan.
To minimize the negative impact of our business operations on the local communities in which we operate,
we conduct impact assessments in advance andimplement a variety of countermeasures. Through working closely with our stakeholders and supporting thedevelopment of local human resources and businesses,
we help communities become vibrant, prosperous andresilient.
Engagement of local industry and people is essential
to our business success. INPEX Australian Industry
Participation Policy sets out our strategy to provide full,
fair and reasonable opportunities for Australian businesses to participate in INPEX activities.
As a global company, INPEX is committed to contributing to the economic and social development of society through our business and to building sustainable
and prosperous communities.

Work Style under COVID-19 Pandemic

Performance and Financial Overview

Reduction of Injuries

Human Rights Due Diligence in Operator Projects

The Basis of our Value Creation

With respect to HSE risks, we implement continuous
management of occupational health, safety and environment in our business activities. We identify, analyze,
and evaluate risks that lead to major incidents, and the
top 10 risks, for each business location based on the
Risk Management Procedure established under the HSE
Management System. In parallel to formulate anda statement on the Company website to disclose thepolicies, systems, and measures for preventing slavelabor and human trafficking within the Company andthroughout the supply chain.

Growth Strategies for Value Creation

We have a Business Continuity Plan (BCP) and responsemanual in place to maintain stable business operations.
Those were developed by incorporating the scenario
planning of Tokyo inland earthquake which wasformulated by the Cabinet Office’s Central Disaster
Management Council of the Japanese government. Ourpolicy on business continuity clearly expresses groupwide values prioritizing the maintenance of a stable ene rg y s u p p l y w h i l e e n s u r i n g h u m a n s a f e t y a n denvironmental preservation. The BCP also stipulates not
only the establishment of provisional offices but also
how our employees should react in the event of anearthquake on a holiday or at night, and procedures for
returning home from the office.
We develop a response manual to prevent the
spread of seasonal and novel influenza. We also

INPEX supports international standards such as the International Bill of Human Rights, the International Labor
Standards of the International Labor Organization (ILO),
the United Nations Guiding Principles on Business andHuman Rights, and the principles of the United Nations
Global Compact. To demonstrate the stance on respectfor human rights and fulfill the responsibilities, INPEX
established and announced the INPEX Group Human
Rights Policy in May 2017. In accordance with that policy, INPEX takes measures to address the human rights
of all stakeholders including the supply chain in eachcountry and region where INPEX conducts business.
Our Human Rights Policy prohibits all forced labor andchild labor and confirms our respect for freedom of association and protection of the right to organize.
To comply with the United Kingdom Modern Slavery
Act 2015, each year since FY2016 INPEX has released

Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_Employees.pdf

Supply Chain Management
Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_Compliance.pdf

As a company to manage projects across about 20 countries worldwide, INPEX recognizes its important role forthe fair and impartial procurement and supply chain
management. Our Details on Ethical Procurement Guideline expressly prohibits impediments to fair and impartial
competition, abuse of a dominant bargaining position,and inappropriate granting or receipt of benefits, and requires protection for the confidentiality of suppliers’ information and technologies. In addition to thosefundamental policy on procurement, INPEX regulates its
executives and employees to comply with Code of Conduct and CSR Principles for this purpose of fair and impartial procurement. We also require suppliers to comply
with labor and environmental laws and regulations,

42

INPEX CORPORATION Annual Report 2020

prevent corruption, and respect the INPEX Group Human
Rights Policy. These requirements are built into our standard contracts. We manage continuous suppliers’ commitment through regular surveys and monitoring.
Risk Assessment System
We have been implementing supply chain risk assessments
through a series of self-assessments for major suppliers. Thissurvey questionnaires enables the Company to monitor thecompliance systems of our suppliers and identify risks.
[Main survey items in the monitoring]
Human rights and labor
Health and safety
Fair business practiceEnvironment
Contribution to local communities
Approach to business partners

In the face of the growing COVID-19 pandemic whichbegan in early 2020, INPEX considered and implemented
policies to protect the health and livelihood of employees and their loved ones, and ensures continuation ofcritical business operations while raising awarenessamong employees throughout the world via HSE alertsfrom the Tokyo HQ Crisis Management Team. For example, the Company regularly notified the revised rules andinfection precautions to head office personnel, including
modified seating arrangements and restricted use of
meeting rooms. Additionally, the Company optimized
the IT environment to enable flexible work and implemented online training to improve the skills of employees as they worked remotely. The Company also devised
comprehensive infection precautions at both domestic
and overseas operation sites, such as shift rotations foressential operating personnel and quarantine treatment
plans.

In addition, INPEX is devoting time and effort to create initiatives which assist the management of work,
teams and health during the remote work environment.
Such initiatives include mental health awareness, seminars for managing teams remotely, and a well-being
workshop.

Promoting Health Management
In accordance with the INPEX Group Health Statement
formulated in 2018, INPEX is promoting work-life balance
and improving the health of its employees to create workplaces where all the employees can work and demonstrate
their full potential. The company has been recognized forthe 2021 Health & Productivity Stock Selection Program
and the White 500 organization in the large enterprise category of the Certified Health & Productivity Management
Organization Recognition Program.

INPEX CORPORATION Annual Report 2020

43

INPEX’s Vision and Value Creation

Directors, Audit & Supervisory Board Members andExecutive Officers(As of March 25, 2021)

Executive Officers (32 individuals)

April 1972
July 2002

Takayuki Ueda

Representative Director,
Chairman

Representative Director,
President & CEO (1)Director (Outside) (2) (4)Director (Outside) (2) (4)Term of office as Director:
10 years and 9 months
Number of shares held: 50,900

Term of office as Director:
2 years and 9 months
Number of shares held: 17,200

Term of office as Director:
1 year and 9 months
Number of shares held: —Term of office as Director:
1 year and 9 months
Number of shares held: —Joined Ministry of International Trade and Industry(currently Ministry of Economy, Trade and Industry)
Director-General, Trade and Economic Cooperation Bureau,
METI
Director-General, Manufacturing Industries Bureau, METI
Director-General, Trade Policy Bureau, METI
Vice-Minister for International Affairs, METI
Advisor to Tokio Marine & Nichido Fire Insurance Co., Ltd.
Senior Executive Vice President, INPEX Corporation
Representative Director, President & CEO
Representative Director, Chairman (incumbent)

April 2005
April 2008
April 2011
April 2013
June 2013
April 2014
June 2016
June 2016

June 2018
June 2019
June 2019
June 2020

June 2010
June 2011
June 2014
June 2015
June 2017
June 2019

SeniorManaging
Executive
OfficerManaging
Executive
Officer

Takahiko Ikeda

Senior Vice President, Technical
Headquarters
Hydrogen & CCUS
Development Office
HSE and Compliance

Shigeharu Yajima

Senior Vice President, Global
Energy Marketing

Kimihisa Kittaka

Senior Vice President, Corporate
Strategy & Planning, Legal Affairs

Kenji Kawano

Senior Vice President, Asia
Projects

Nobuharu Sase

Senior Vice President, General
Administration

Daisuke Yamada

Senior Vice President, Finance &Accounting

Hiroshi Fujii

Senior Vice President, Abu
Dhabi Projects
Senior Vice President, Domestic
Exploration & Production
General Manager, Drilling Unit
Domestic Exploration &Production Division

Tomoo Nishikawa

Noboru Himata

Director
Senior Executive Vice
President

Director
Senior Executive Vice
President

Director
Senior Managing
Executive Officer

Director (Outside) (2) (4)Audit & Supervisory
Board Member

Takashi Kubo

Senior Vice President, Logistics& IMT

Term of office as Director:
12 years and 6 months
Number of shares held: 38,200

Term of office as Director:
1 year and 9 months
Number of shares held: 18,600

Term of office as Full-time
Audit & Supervisory Board
Member: 1 year and 9 months
Number of shares held: 18,300

Atsushi Sakamoto

Term of office as Director:
15 years
Number of shares held: 32,300

Strategic Projects Office
General Manager, Strategic
Projects Office

Yoshiro Ishii

Senior Vice President,
Renewable Energy & New
Business
Hydrogen & CCUS
Development Office (Deputy)

Toshiaki Takimoto

Senior Vice President, New
Ventures & Global Exploration

April 1978
March 2005
June 2007
October 2008
June 2014
April 2017
June 2018
March 2020
March 2021

Joined Teikoku Oil Co., Ltd.
Director and General Manager, Production, Domestic
Headquarters, Teikoku Oil Co., Ltd.
Managing Director, President of Domestic Operation Division
and General Manager of Niigata District Department
Director, Managing Executive Officer, Senior Vice President ofDomestic Projects, INPEX Corporation
Director, Managing Executive Officer, Senior Vice President of
Gas Supply & Infrastructure Division
Director, Managing Executive Officer, Senior Vice President ofTechnical Headquarters
Director, Senior Managing Executive Offcer, Senior Vice
President of Technical Headquarters and in charge of HSE
and ComplianceDirector, Senior Executive Vice President, Senior Vice
President of Technical Headquarters, HSE and ComplianceDirector, Senior Executive Vice President, Senior Vice Presidentof Technical Headquarters, Hydrogen & CCUS Development
Office, HSE and Compliance (incumbent)(1)April 1979
February 2005
October 2008
June 2010
June 2014
April 2017
June 2019

Joined Tomen Corporation (currently Toyota Tsusho
Corporation)
Joined INPEX Corporation
General Manager of Gas Business Unit, Oil & Gas Business
Division No. 1
Executive Officer, Vice President of Oil & Gas Business
Division No. 1, General Manager of Gas Business UnitManaging Executive Officer, Senior Vice President of Oil &Gas Business Division No.1
Managing Executive Officer, Senior Vice President of Global
Energy Marketing
Director, Senior Managing Executive Officer, Senior Vice
President, Global Energy Marketing (incumbent)

Term of office as Director:
1 yearNumber of shares held: —April 1972
April 1977
June 1979
August 1995
October 1996
October 2002
November 2006
April 2008
January 2020
March 2020

Joined the Ministry of Construction (currently the Ministry ofLand, Infrastructure, Transport and Tourism)
Attorney at Law admitted to practice in Japan; joined Anderson
Mori & Rabinowitz (currently Anderson Mori & Tomotsune), andlater served as Partner
Completed a Master of Laws (LL.M.) at Harvard Law School
Partner, Komatsu, Koma & Nishikawa (currently Asahi Law
Offices)
Member of House of Representatives (for one term,
Kanagawa 3rd district)
Managing Partner, Sidley Austin Nishikawa Foreign Law Joint
Enterprise
Auditor-Secretary, Tohoku University
Visiting Professor, Tohoku University
Partner, Sidley Austin Nishikawa Foreign Law Joint Enterprise
Director (Outside), INPEX Corporation (incumbent)

April 1980
June 2003
June 2007
October 2008
June 2018
June 2019

Joined The Industrial Bank of Japan, Ltd. (currently Mizuho
Bank, Ltd.)
Joined INPEX Corporation
Executive Officer, in charge of accounting, INPEXCorporation
Executive Officer, Vice President of Finance & Accounting,General Manager of Finance UnitManaging Executive Officer, Vice President, Finance &Accounting, General Manager of Finance Unit
Audit & Supervisory Board Member (full-time) (incumbent)

Kimihisa Kittaka

Nobuharu Sase

Daisuke Yamada

Hideyuki Toyama

Shinya Miyake

Director (1)Senior Managing
Executive Officer

Director (1)Managing Executive
Officer

Director (1)Managing Executive
Officer

Audit & Supervisory Board
Member (Outside) (3) (4)Audit & Supervisory Board
Member (Outside) (3) (4)Term of office as Director:
4 years and 9 months
Number of shares held: 15,900

Term of office as Director:
4 years and 9 months
Number of shares held: 38,300

Term of office as Director:
1 yearNumber of shares held: 5,100

Joined Ministry of International Trade and Industry (currently
Ministry of Economy, Trade and Industry)
Director-General for Consumer Policy, METI
Director-General, Kyushu Bureau, METI
Joined INPEX Corporation
Executive Officer, Vice President of Corporate Strategy &Planning Division, General Manager of Corporate Strategy &Planning Unit, and Corporate Communication Unit
Director, Managing Executive Officer, Senior Vice President,
Corporate Strategy & Planning
Director, Managing Executive Officer, Senior Vice President,
Corporate Strategy & Planning, Legal Affairs
Director, Senior Managing Executive Officer, Senior Vice
President, Corporate Strategy & Planning, Legal Affairs(incumbent)

April 1981
October 2008
June 2010
June 2016

Joined Indonesia Petroleum, Ltd. (INPEX Corporation)
Vice President of General Administration Division, General
Manager of Secretarial Unit
Executive Officer, Vice President of Oil & Gas Business
Division No.1, General Manager, Oil Marketing Unit
Director, Managing Executive Officer, Senior Vice President,
General Administration (incumbent)

April 1984
April 2011
April 2012
April 2013
July 2013
April 2014
April 2018
May 2019
June 2019

Joined The Industrial Bank of Japan, Ltd. (currently Mizuho
Bank, Ltd.)
Executive Officer, General Manager of Industry Research
Division, Mizuho Corporate Bank, Ltd.
Executive Officer, General Manager of Industry Research
Division, Mizuho Bank, Ltd.
Managing Executive Officer, Deputy in charge of BranchBanking Group, Mizuho Bank, Ltd. Managing Executive Officer
in charge of Corporate Banking, Mizuho Corporate Bank, Ltd.
Managing Executive Officer in charge of Branch Banking
Group, Mizuho Bank, Ltd.
Managing Executive Officer, Head of Corporate Banking Unit
(Large Corporations), Mizuho Financial Group, Inc.
Senior Managing Executive Officer in charge of Digital Innovation,
Mizuho Financial Group, Inc. (resigned in March 2019)
Councilor, INPEX Corporation
Managing Executive Officer, Vice President, Finance & Accounting,General Manager, Finance Unit, Finance & Accounting Division
Director, Managing Executive Officer, Senior Vice President
Finance & Accounting (incumbent)(Shinya Inoue)

Term of office as Full-time
Audit & Supervisory Board
Member: 5 years and 9 months
Number of shares held: —April 1975
July 2001
July 2003
July 2005
October 2006
November 2012
January 2013
June 2015

Joined Ministry of FinanceDirector-General of Sapporo Regional Taxation Bureau,
National Tax Agency (NTA)
Executive Secretary of the Administration Office, Cabinet
Legislation Bureau (CLB)
Director-General of the Fourth Department, CLB
Director-General of the Third Department, CLB
Advisor, Aioi Nissay Dowa Insurance Co., Ltd.
Registered as attorney-at-law (incumbent)
Audit & Supervisory Board Member (full-time) (Outside),
INPEX Corporation (incumbent)

Term of office as Full-time
Audit & Supervisory Board
Member: 1 year and 9 months
Number of shares held: —Joined Export-Import Bank of Japan (currently Japan Bank forInternational Cooperation)
Senior Advisor for Global Environmental Affairs, Corporate
Group, Japan Bank for International Cooperation (in chargeof global environmental issues)
November 2013 Director General, Nuclear & Renewable Energy Finance
Department, Energy, Natural Resources and Environment
Finance Group, Japan Bank for International Cooperation
July 2014
Earned a Doctor of Social Science
July 2015
Director General, New Energy & Power Finance Department
I, Infrastructure and Environment Finance Group, Japan Bankfor International Cooperation
September 2016 Executive Managing Director, Japan Institute for Overseas
Investment
June 2017
Regional Executive Officer, Regional Head for the Americas,
Japan Bank for International Cooperation (stationed in New
York)
June 2019
Audit & Supervisory Board Member (full-time) (Outside),
INPEX Corporation (incumbent)

Atsuko Nishimura

Mitsuru Akiyoshi

Hiroko Kiba

Director (Outside) (2) (4)Director (Outside) (2) (4)Director (Outside) (2) (4)Audit & Supervisory Board
Member (Outside) (3) (4)Audit & Supervisory Board
Member (Outside) (3) (4)Term of office as Director:
4 years and 9 months
Number of shares held: —Term of office as Director:
3 years and 9 months
Number of shares held: —Term of office as Director:
3 years and 9 months
Number of shares held: —April 2008
October 2008
June 2009
August 2009
April 2010
April 2011
June 2011
June 2017

Joined Mitsui & Co., Ltd.
Managing Officer, Chief Operating Officer, Energy Business
Unit, Mitsui & Co., Ltd.
Executive Managing Officer, Chief Operating Officer, Europe
Middle East and Africa Unit, Mitsui & Co., Ltd.
Senior Executive Managing Officer, Chief Operating Officer,
Europe Middle East and Africa Unit, Mitsui & Co., Ltd.
Representative Director, Senior Executive Managing Officer,
Mitsui & Co., Ltd.
Representative Director, Senior Executive Managing Officer,
Chief Compliance Officer, Mitsui & Co., Ltd.
Representative Director, Senior Executive Managing Officer,
Mitsui & Co., Ltd.
Director, Mitsui & Co., Ltd.
Counselor, Mitsui & Co., Ltd.
Director (Outside), INPEX Corporation (incumbent)

Joined Ministry of Foreign Affairs
Director, First Africa Division, Middle Eastern and African
Affairs Bureau
August 1999
Counselor/Minister, Permanent Mission of Japan to theUnited Nations
June 2001
Minister, Embassy of Japan in Belgium
September 2004 Professor, School of Law, Tohoku University
June 2008
Administrative Vice President, Japan Foundation
April 2012
Senior Councilor, Japan Oil, Gas and Metals National
Corporation
April 2014
Ambassador Extraordinary and Plenipotentiary to the Grand
Duchy of Luxembourg
July 2016
Ambassador Extraordinary and Plenipotentiary in charge of
Women, Human Rights and Humanitarian Affairs
June 2017
Director (Outside), INPEX Corporation (incumbent)
April 1979
June 1997

INPEX CORPORATION Annual Report 2020

(Hiroko Yoda)

Term of office as Audit &Supervisory Board Member:
1 year and 9 months
Number of shares held: —April 1978
April 2007
April 2009
June 2010
April 2012
April 2014
April 2018
June 2018
April 2019
June 2019

Joined Marubeni Corporation
Executive Officer, General Manager of Finance Department,
Marubeni Corporation
Managing Executive Officer, Marubeni Corporation
Representative Director, Managing Executive Officer,
Marubeni Corporation
Representative Director, Senior Managing Executive Officer,
Marubeni Corporation
Representative Director, Senior Executive Vice President,
Marubeni Corporation
Director, Senior Consultant, Marubeni Corporation
Consultant, Marubeni Corporation
Representative Director and President, MG Leasing
Corporation (currently Mizuho Marubeni Leasing
Corporation) (incumbent)
Audit & Supervisory Board Member (Outside), INPEXCorporation (incumbent)

Vice President, Oceania Projects
General Manager, Perth Office
President Director, Australia

Kazuyoshi Miura

Senior Vice President, Domestic
Energy Supply & Marketing

Yuzo Sengoku

Senior Vice President, Eurasia,
Middle East & Africa Projects

Hideki Kurimura

Vice President, Asia Projects
Vice President, Technical
Headquarters

Yosuke Happo

Vice President, Logistics & IMT

Koichi Ogino

Vice President, Domestic Energy
Supply & Marketing
General Manager, Gas
Supplying Unit
Domestic Energy Supply &Marketing Division

Akihiro Watanabe

Vice President, Asia Projects
General Manager, Jakarta Office
President Director Indonesia

Mitsuo Tamura

Vice President, Abu Dhabi
Projects
General Manager, Planning &Coordination Unit
Abu Dhabi Projects Division

Munehiro Hosono

Vice President, Corporate
Strategy & Planning
General Manager, Corporate
Communications Unit
Corporate Strategy & Planning
Division

Akio Kawamura

Vice President, Finance &Accounting
General Manager, Accounting
Unit 1
Finance & Accounting Division

Yukiyo Ikeda

Vice President, Corporate
Strategy & Planning

Hiroshi Kato

Vice President, Global Energy
MarketingGeneral Manager, Oil Marketing
Unit
Global Energy Marketing
Division

Shinichi Takada

Vice President, Oceania Projects
Vice President Ichthys Phase 2

Hiromi Sugiyama

Vice President, Domestic
Exploration & Production
General Manager, Exploration &Exploitation Unit
Domestic Exploration &Production Division

Shoichi Kaganoi

General Manager, Hydrogen &CCUS Development OfficeTetsuhiro Murayama

Vice President, Oceania Projects
Deputy General Manager, Perth
OfficeSenior Vice President Corporate

Wataru Nojiri

General Manager, HSE Unit

October 2012

Norinao Iio

June 1973
April 2005

Hitoshi Okawa

April 1987

Jun Yanai

Joined Mitsubishi Corporation
Senior Vice President, Senior Assistant to Group CEO, Energy
Business Group, Mitsubishi Corporation
Senior Vice President, Division COO, Petroleum Business
Division, Mitsubishi Corporation
Executive Vice President, Group COO, Energy BusinessGroup, Mitsubishi Corporation
Executive Vice President, Group CEO, Energy BusinessGroup, Mitsubishi Corporation
Senior Executive Vice President, Group CEO, Energy
Business Group, Mitsubishi Corporation
Member of the Board, Senior Executive Vice President,Group CEO, Energy Business Group, Mitsubishi Corporation
Member of the Board, Senior Executive Vice President,Group CEO and CCO, Energy Business Group, Mitsubishi
Corporation
Corporate Advisor, Mitsubishi Corporation (incumbent)
Director (Outside), INPEX Corporation (incumbent)

Vice President, Americas
Nobusuke Shimada Senior
Projects

Executive
Officer(1) Concurrently holds the position of executive officer (2) Outside directors as defined in Article 2, Item 15, of the Companies Act (3) Outside Audit & Supervisory Board members as defined in Article 2, Item 16, of the Companies Act(4) Independent directors/auditors as defined in Article 436, Item 2, Sub-Item 1, of the Securities Listings Regulations for the Tokyo Stock Exchange

44

April 2010

Joined Japan Petroleum Exploration Co., Ltd. (JAPEX)
Executive Officer, Deputy Senior Vice President ofDevelopment Division, JAPEX
Executive Officer, Senior Vice President of Development
Division, JAPEXManaging Executive Officer, JAPEXManaging Director & Executive Officer, JAPEX
Senior Managing Director & Executive Officer, JAPEX
Executive Vice President and Executive Officer, JAPEX
Advisor, JAPEX (incumbent)
Director (Outside), INPEX Corporation (incumbent)

Senior Vice President, Oceania
Projects
Head of Overseas Projects

Shigeharu Yajima(1)

March 2020

April 1973
April 2004

April 2017

April 1977
June 2009

Seiya Ito

Term of office as Audit &Supervisory Board Member:
1 year and 9 months
Number of shares held: —April 1987
April 2001
January 2007
July 2007
February 2008
March 2009
April 2013
January 2016
November 2017
February 2019
June 2019

Joined Tokyo Broadcasting System, Inc. (currently Tokyo
Broadcasting System Television, Inc.)
Part-time Lecturer, Faculty of Education, Chiba University
Member of the Council for Regulatory Reform (PMO)
Member of the Ministry of Economy, Trade and Industry’s
Advisory Committee for Natural Resources and Energy(incumbent)
Member of the Education Rebuilding Council (PMO)
Member of the Ministry of Land, Infrastructure, Transport andTourism’s Council for Transport Policy (incumbent)
Visiting Professor, Chiba University (incumbent)
Police advisor for the Japan Coast Guard (incumbent)
Member of the Ministry of Health, Labour and Welfare’s
Medical Ethics Council (incumbent)
Member of the Ministry of Education, Culture, Sports,
Science and Technology’s Central Council of Education(incumbent)
Audit & Supervisory Board Member (Outside), INPEXCorporation (incumbent)

INPEX CORPORATION Annual Report 2020

Performance and Financial Overview

January 2021

June 2012
June 2012

Joined Nippon Oil Company, Ltd.
Director, Nippon Mitsubishi Oil Corporation
Managing Director & Executive Officer, Nippon Oil Corporation
Member of the Board, JX Holdings, Inc. (part-time)
Representative Director, President, President and Chief
Executive Officer, JX Nippon Oil & Energy Corporation
Representative Director, Chairman of the Board, JX Holdings, Inc.
Representative Director, Chairman of the Board, JX Nippon
Oil & Energy Corporation
Representative Director, Chairman of the Board, JXTG
Holdings, Inc.
Senior Executive Adviser, JXTG Holdings, Inc.
Director (Outside), INPEX Corporation (incumbent)
Senior Corporate Advisor, JXTG Holdings, Inc.
Senior Corporate Advisor, ENEOS Holdings, Inc. (incumbent)

Takayuki Ueda

The Basis of our Value Creation

June 2019

April 1970
June 2002
June 2007
April 2010
July 2010

SeniorExecutive
Vice
President

Takahiko Ikeda

Joined Indonesia Petroleum, Ltd. (INPEX Corporation)
Director, General Manager of Corporate Planning &Management Department
November 2004 Director, General Manager of Corporate Planning &Management Department and Public Affairs Department
September 2005 Director, Assistant Senior General Manager of Corporate
Strategy & Administration Division, General Manager ofCorporate Strategy & Planning Unit and Public Affairs Unit
April 2006
Director, Assistant Senior General Manager of Corporate
Strategy & Administration Division, General Manager ofCorporate Strategy & Planning Unit
October 2008
Director, Managing Executive Officer, Senior Vice President of
Ichthys Project
June 2016
Director, Senior Managing Executive Officer, Senior Vice
President, Ichthys Project
June 2019
Director, Senior Executive Vice President, Senior Vice
President, Oceania Projects, Head of Overseas Projects(incumbent)

June 2016

Joined Ministry of International Trade and Industry (currently
Ministry of Economy, Trade and Industry)
Director-General, Minister’s Secretariat
Director-General, Manufacturing Industries Bureau, METI
Director-General, Trade Policy Bureau, METI
Commissioner, Agency for Natural Resources and Energy
Vice-Minister for International Affairs, METI
Councilor (part-time), INPEX Corporation
Senior Executive Vice President
Representative Director, President & CEO (incumbent)

President &CEO

Seiya Ito

April 1977
June 2003

October 2007
July 2008
November 2010
June 2012

July 2010
August 2011
September 2012
June 2013
July 2015
April 2017
August 2017
June 2018

Kiyoshi Ogino

Kimiya Hirayama(1)

April 1981

April 1980

Yasushi Kimura

Growth Strategies for Value Creation

July 2003
June 2004
July 2006
November 2007
August 2009
June 2010
June 2018

Toshiaki Kitamura

45

Outside Director and Outside Audit & Supervisory
Board Member Roundtable Discussion

hope that such opportunities will be actively
pursued once the pandemic is brought
under control.
–––– Prior to the spread of COVID-19, theCompany did organize events such as
tours of INPEX production facilities for

new Outside Directors and Outside Audit& Supervisory Board Members. I am surethat events of this type, including social
events, will be held again once the pandemic subsides.

INPEX’s Vision and Value Creation

Over the past year or two, the COVID-19
pandemic has caused restrictions on social
events and gatherings. Formal settings suchas meetings of the Board of Directors are ofcourse the main channel of communication,but other forms of communication can help
to strengthen mutual understanding, and I

Topic No. 2: Business Development Strategy - Towards a Net Zero Carbon Society by 2050

Director (Outside)

Hiroko Kiba

Audit & Supervisory Board
Member (Outside)

Norinao Iio

Director (Outside)

INPEX has evaluated the effectiveness of its Board of Directors on an ongoing basis since 2015, working toenhance the Board’s performance by responding to the issues identified in the process. In January 2021,
INPEX announced proactive initiatives aimed at the realization of the Company’s Business Development
Strategy - Towards a Net Zero Carbon Society by 2050. Based on these developments, we held a roundtable discussion on topics including the characteristics and challenges of INPEX’s governance, as well as theBusiness Development Strategy and other matters.
The roundtable discussion was moderated by Nobuharu Sase, Director, Managing Executive Officer and Senior Vice President, General Administration.

–––– Mr. Norinao Iio and Mr. Yasushi Kimura
have served as Outside Directors of INPEX
for four and two years, respectively. Ms.
Hiroko Kiba has served as an Outside
Audit & Supervisory Board Member of
INPEX for two years. What are your impressions of INPEX’s Board of Directors?

Yasushi Kimura: In terms of the planningand execution of board meetings, it isevident that both the Chair and the secretariat work hard to ensure the smooth flowof discussion and maintain the right atmosphere. This enables board members tooffer views based on their own individual
perspectives and experiences, which leads
to constructive dialogue.
Hiroko Kiba: I feel that INPEX board members are able to freely express their views
from their own individual perspectives,
which allows for open and frank exchanges
overall. There are times when discussions
become heated and extend beyond thescheduled time.
INPEX also deserves praise for being
very receptive to the views and requests of
Outside Directors and Outside Audit & Supervisory Board Members and responding
quickly.
–––– Are there any issues that need to beaddressed in order to further enhance the46

INPEX CORPORATION Annual Report 2020

Norinao Iio: The role of Outside Directors
and Outside Audit & Supervisory Board
Members is to adequately address and discuss the company’s broad strategies, andthen entrust matters of implementation to
the company’s executives. As I see it, Outside Directors should not be too involvedin executive matters.
Having said that, Outside Directors andOutside Audit & Supervisory Board Members rely on information provided by the
executives to make informed judgements.
Particularly in a negative turn of events, information needs to be provided in a timely
manner.
All the Directors and Audit & Supervisory Board Members, regardless of internalor outside, want the company to do well,so I believe it is important to continue fostering a solid relationship based on mutual
trust.
Yasushi Kimura: I am strongly aware of thedivision of responsibility between Outside
Directors and executives.
Another point is that taking risks is acore aspect of business management. To
make up for the (inevitable) difference in thequantity and quality of information available
to them, Outside Directors and Outside Audit & Supervisory Board Members must be
firm with their questioning and encourage
executives to take risks when necessary. It is
important to have the right balance between mutual respect and detachment in
the relationship between internal and outside members. Rather than being polarized
in their approach to issues, they should remember that they are all working together
to create a better company.

Hiroko Kiba: As part of my auditing responsibilities, I meet with Directors to discuss the Company’s business operations.
I have found that these meetings are very
useful to further my understanding of
INPEX. When the Company’s website was
updated, we asked the Company to share
information as quickly as possible. The
Company responded very promptly. I believe Outside Directors and Outside Audit& Supervisory Board Members must strive
to deepen their understanding of theCompany.
–––– Mr. Iio has been an Outside Director
at INPEX for longer than others. Have you
noticed any changes over this four-year
period?
Norinao Iio: I have definitely noticed an
improvement in terms of the diversity of
the Board over the last four years, andI feel that this has given the Board’s discussions greater depth. I also feel that Audit &Supervisory Board Members have come toaddress the Board more frequently. On thewhole, Board discussions have become
more compelling.
–––– Mr. Kimura, is there anything that you
have noticed, based on your experience
as an energy company executive and as
an Outside Director and Chairman of theBoard of another listed company?
Yasushi Kimura: Every Board of Directors
carries the legacy of the company in question, so one cannot compare and rank the
merits of companies in this regard. From
this perspective, I view INPEX as beinga sound company with a long history.
INPEX has numerous positive attributes
and should stand confident.

Hiroko Kiba: I have been involved in work
relating to the energy sector for nearly 20
years. Reporting on energy infrastructure
facilities has been a major part of my career, and I have likely donned a safety helmet on more occasions than any otherfemale reporter in Japan.
What makes INPEX so appealing is that
this is a company that has been entrustedwith an important social mission. For example, INPEX helps enhance Japan’s energy security by improving the country’s
independent development ratio (of oil andnatural gas). It is clear that INPEX, which
has for many years run its own production
sites and executed sound management, isnow entering an important transitional period in which it will have to consider how itneeds to change.
On this point, I have shared my views
on several occasions during Board meetings. I feel that in changing its Japanese
corporate name to INPEX, the Company
has made a timely and appropriate decision. When seeking to move forward, it isvery important to clarify what needs tochange and what does not. In terms ofchange, I hope the Company will commit
to implementing measures that enable

Yasushi Kimura: Over the past century, humanity has enjoyed prosperity and well-being from (the exploitation of) petroleum, but
the negative aspects of fossil fuels, such as
the volume of CO2 emissions, have now
come to light. It is undisputed that people
will continue using energy in the future, andtherefore the negative aspects must be addressed. We are entering a new era of competition, in which we need to consider who
will be providing carbon-neutral energy andwhat it will be used for. Ultimately, energy
choices will be made not by energy suppliers but by consumers. INPEX will need tooffer a variety of energy supply options andsee which are accepted by consumers andthe wider public. At the current stage, it isvital to expand into various new business–––– From your perspective, Ms. Kiba,
would you say there are some areas
where the Company has not done enoughor needs to do more to enhance its social
standing and promote itself externally?
Hiroko Kiba: Firstly, with regard to talent
recruitment, I believe that it is very important to spread awareness of what makes
INPEX such a special company. I recognizethat INPEX does not engage in a whole lotof PR activities targeting the general public, as a company mainly involved in business-to-business (B2B) transactions.
Nevertheless, INPEX still needs to secure
outstanding human resources. Taking into
account the new business areas that theCompany will be moving into, there isa real need to communicate the potentialof INPEX’s businesses. I have the impression that INPEX’s public relations are somewhat conservative. One readily accessible
tool for remedying this situation would be
to make effective use of the Company’s
website to spread awareness of whatmakes INPEX special. I believe the Company needs to pay more attention to implementing PR that connects with external
stakeholders.

Performance and Financial Overview

Norinao Iio: INPEX’s Board of Directors
consists of eight Directors and six Outside
Directors. Four out of five Outside Audit &Supervisory Board Members are outside
members, so, as I see it, there is a goodbalance between internal and outside
members. I feel that ensuring diversity inthis way makes it possible to engage in dialogue incorporating a wide range ofperspectives.

effectiveness of the Board of Directors,
and is there anything in particular that you
yourself have noticed?

Norinao Iio: Looking at social trends, I feelthat the challenges surrounding ESG arebecoming increasingly significant, and thisapplies to INPEX too. As such, it is evermore important for Outside Directors andOutside Audit & Supervisory Board Members, who possess diverse and specialized
knowledge and expertise, to offer counsel
on how the company can restructure its
business portfolio and develop new business areas.
Looking 20~30 years ahead, INPEX cannot afford to be burdened with stranded
assets. In this regard, now is a very important time. More specifically, with production
at the Ichthys LNG Project proceedingsmoothly, development of the Abadi LNG
Project also going well and an overall shift
to gas underway, this is the right time totake proactive measures to develop carbon-neutral LNG through Carbon dioxide
Capture, Utilization and Storage (CCUS)
and other means. From this standpoint, it
would seem sensible to actively promote
new business development in line withINPEX’s strategy for the future.

young people to work at INPEX with foresight and enthusiasm.

The Basis of our Value Creation

Topic No. 1: Future Challenges Regarding the Effectiveness of the INPEX Board of Directors

areas. Rather than being too focused on
one particular area, it is important to adopt
a framework that allows the Company to dovarious different things.

Growth Strategies for Value Creation

Yasushi Kimura–––– Please share your views on INPEX’s
Business Development Strategy - Towards
a Net Zero Carbon Society by 2050, which
was announced in late January 2021.

Topic No. 3: INPEX’s Response to COVID-19–––– I would like to hear how you all feel
about the measures that INPEX has taken
in response to the COVID-19 epidemic.
Norinao Iio: I feel that some INPEX employees may be feeling some anxiety
about the major changes that are taking
place with the pandemic and the Company’s strategy of developing new businessareas as the world is turning away from fossil fuels.
It is precisely during times like thesethat senior management needs to passionately communicate the company’s philosophy to employees. Familiarizing all
employees with the company’s goals andobjectives can be a key factor in helping
a company overcome challenging times.

Yasushi Kimura: All companies have been
affected by COVID-19 to at least some extent. INPEX has mounted various strategies
and countermeasures, including adjusting
operational systems both in Japan andaround the world. Overall, one can say
INPEX has responded very well.
I feel that, in a crisis, it is important for acompany to go back to its roots, and for
top management to take the lead inspreading awareness among internal andexternal stakeholders on where the company stands.
Hiroko Kiba: The spread of COVID-19 has
led to changes in working arrangements
and the emotional and psychologicalwell-being of employees is a point of concern. I believe that it is becoming

increasingly important for senior management to disseminate messages that convey
their vision, approach and concern for thewell-being of employees.
–––– Thank you all very much for providing
us with your valuable insights and opinions today. Keeping in mind the points
that you have raised, we will be striving tofurther enhance the effectiveness of theBoard of Directors, while making every effort to implement measures to help us realize our Business Development Strategy Towards a Net Zero Carbon Society by
2050.

INPEX CORPORATION Annual Report 202047

Corporate Governance(As of March 25, 2021)

Formulation of Corporate Governance
Guidelines

Overview of the Corporate Governance Structure
Supervisory Board members are also appointed from externalsources. In addition to putting in place an Audit & Supervisory
Board, INPEX has set up the Audit & Supervisory Board Members’ Office and deployed dedicated staff and is reinforcing
collaboration between Audit & Supervisory Board members
and the Audit Unit, as well as independent auditors.
Overview of the Corporate Governance Structure
Organizational structure

Directors

Audit & Supervisory
Board members

Number of independent
directors and auditors
Rights plan and othermeasures to protect
against a takeover

Company with Audit & Supervisory Board
Members
Number of directors as stipulatedby the Articles of Incorporation............. up to 16
Number of directors(number of outside directors)................. 14 (6)Term of office................................................ 1 year
Number of Audit & Supervisory Board
members as stipulated by the Articles ofIncorporation........................................... up to 5
Number of Audit & Supervisory Board
members (number of outside Audit &Supervisory Board members)................. 5 (4)Term of office................................................ 4 years
10 (6 outside directors, 4 outside Audit &Supervisory Board members)
None

Corporate Governance Framework
General Meeting of Shareholders
Appoint/Dismiss
Compensation limit setup

Nomination and Compensation
Advisory Committee

INPEX Advisory Committee

Appoint/Dismiss
Compensation limit setup

ReportProposal/Advice/Report

Board of Directors

Report6 Outside Directors

Compliance Committee

Audit

Audit & Supervisory
Board (Member)

Audit

Coordinate

ReportAccounting
audit

Executive
Committee

CSR Committee

President & CEO

Corporate HSE Committee
Information Security
Committee
INPEX Value Assurance
System Committee

Divisions and Subsidiaries

Directors and the Board of Directors

INPEX CORPORATION Annual Report 2020

ReportAudit Unit

Accounting
audit
Coordinate

Executive Officers

Report

The responsibilities of the Board of Directors shall be to fully exercise its supervisory function, secure fairness and transparency inmanagement, and ensure sustainable growth and increase corporate value over the medium to long term through implementationof effective corporate governance, with recognition of its fiduciary
responsibility to shareholders.
The Company’s Board of Directors comprises 14 members, sixof whom are outside directors. In addition to a monthly meeting,the Board of Directors meets as necessary to discuss and determine matters concerning management strategy and importantbusiness execution, and to supervise the execution of duties bydirectors. The term of office for directors is set at one year. In addition to enhancing the ability of directors to respond to changes

48

Independent
Auditors

Coordinate

Appoint/
Dismiss/
SuperviseInternal audit

in the Company’s global operating environment in a timely
manner, this initiative helps to further clarify management
responsibilities.

Executive Committee and Executive Officer
SystemFrom the perspective of increasing the speed of decision making
related to the execution of business, we have established an Executive Committee. Meetings are held weekly and as necessary.
At the Executive Committee, flexible decision making is conducted for resolutions not affiliated with the Board of Directors, anddeliberation is held to contribute to decision making by the Boardof Directors.

With the aim of strengthening the functional independence andobjectivity as well as accountability of the Board of Directors inconnection with compensation paid to directors, the Board of Directors specifies a policy for determining the amount and computation method of compensation paid to directors and Audit &Supervisory Board members, following a report from the Nomination and Compensation Advisory Committee. The compensation
for directors, with the exception of outside directors, consists ofthree types: basic compensation, bonuses (performance-based
compensation) and stock-based remuneration. Compensation foroutside directors is limited to basic compensation only. Basiccompensation is paid based on the duties of each Director andthe bonus shall be paid based on the Company’s performancefrom a medium- to long-term perspective and other factors. As tothe stock-based compensation, the Company’s shares, etc. will bedelivered based on the position, etc. of each Director, with theaim of raising the awareness of Directors towards increasing theenterprise value of the Company and further increase their willingness to contribute to maximizing shareholder value, by making
clear the linkage between the remuneration of Directors and theCompany’s medium- to long-term stock price. Based on a resolution passed in June 2018 at the 12th Ordinary General Meeting of
Shareholders, a stock-based remuneration system has been introduced for directors and executive officers. The Board of Directors
decide on compensation for directors within the limits and terms
approved at the general meeting of shareholders following
a report from the Nomination and Compensation Advisory Committee. For details on the decision policy regarding the content of
individual compensation for directors, please refer to the
Corporate Governance Report (pages 9 and 10). Compensation
for Audit & Supervisory Board members consists solely of a basic
compensation, which is determined through consultation between
the Audit & Supervisory Board members, within the limits andterms approved at the general meeting of shareholders.

Results
Results with regard to key indices relating to performance-based compensation in FY2020 are as follows:
Key management index
	Net loss attributable to owners of¥(111,699) million
parent
Key results of business operations
Net production volume (BOE)
573 thousand barrels per day

Compensation for Directors and Audit & Supervisory
Board Members in FY2020
Classification

Total compensation by type
Number of eligible
Total amount of(millions of yen)directors and Audit
compensation& Supervisory Board
paid
Basic
Stock-based
members(millions of yen) compensation Bonus remuneration(persons)

Directors(excluding outside directors)
Audit & Supervisory Board
members(excluding outside Audit &Supervisory Board members)
Outside directors andoutside Audit & Supervisory
Board members

447

381

54

11

9

31

31

-

-

1

156

156

-

-

10

Notes: 1. The number of directors and Audit & Supervisory Board members presented in thetable above includes one director who retired at the conclusion of the Company’s
14th Ordinary General Meeting of Shareholders held on March 25, 2020.
2. The Company does not uphold an accrued retirement benefits plan.
3. The maximum monthly basic compensation for directors was resolved to bewithin ¥47 million (including monthly compensation for outside directors of within¥6 million) at the 11th Ordinary General Meeting of Shareholders held on June27, 2017. The number of directors immediately after the conclusion of the 15th
Ordinary General Meeting of Shareholders held on March 25, 2021 is fourteen(including six outside directors).
4. T he maximum monthly basic compensation for Audit & Supervisory Board
members was resolved to be within ¥10 million at the 13th Ordinary General
Meeting of Shareholders held on June 25, 2019. The number of Audit &Supervisory Board members immediately after the conclusion of the 15th
Ordinary General Meeting of Shareholders held on March 25, 2021 is five.
5. The amount of bonus is the amount based on the resolution made at the 15th
Ordinary General Meeting of Shareholders held on March 25, 2021 to pay a total
amount of ¥54 million to eight directors in office at the end of the business year
under review, excluding outside directors.
6. At the 12th Ordinary General Meeting of Shareholders held on June 26, 2018, theCompany resolved to introduce a stock-based remuneration system for directors(excluding outside directors and non-residents of Japan) and executive officers(the BIP Trust). The number of directors (excluding outside directors and nonresidents of Japan) immediately after the conclusion of the 15th Ordinary General
Meeting of Shareholders held on March 25, 2021 is eight. The amount of thestock-based remuneration presented in the table above represents the fees
incurred regarding the stock-based points granted during the business year
under review concerning the BIP Trust for directors.

Accounting Audit and Auditor Compensation
In accordance with the Companies Act and the Financial Instruments and Exchange Act, we accept accounting audits from Ernst& Young ShinNihon LLC. The amount of auditor compensation isdetermined in total based on the audit plan and the number ofauditing dates, after obtaining approval from the Audit & Supervisory Board.

Performance and Financial Overview

Business Operation
System

According to the stipulations of the Articles of Incorporation, INPEX issues a Class A Stock to the Minister of Economy, Trade andIndustry. The Class A Stock does not possess voting rights atshareholders’ meetings. However, it is possible for the holder of
the Class A Stock to exercise veto rights for certain major corporate decisions. We think the holding of Class A Stock by the Minister of Economy, Trade and Industry will help prevent any incidenceof unusual management, allow INPEX to stably supply energy as acore company for Japan’s oil & gas E&P and ensure that the Company does not incur any negative impact from a speculative acquisition or an attempt at management control through foreign
capital. On this basis, INPEX’s role is assured. Furthermore, we expect positive results in terms of external negotiation and credits
as a national flagship company efficiently contributing to the stable supply of energy in Japan.

Director Compensation

Coordinate

Coordinate
Audit & Supervisory
Board Members’ OfficeAppoint/
Dismiss/
Supervise

Appoint/
Dismiss

Class A Stock

Targets
The forecasts announced by
the Company for key indicesrelating to performance-based
compensation in FY2020 werea net income attributable toowners of parent of ¥145 billion
and a net production volumeof 608 thousand barrels of oil
equivalent (BOE) per day.

The Basis of our Value Creation

Issuance of a Class A Stock to the Minister of
Economy, Trade and Industry

Other

The mission of the Company is to contribute to the creation ofa brighter future for society through our efforts to develop, produce and deliver energy in a sustainable way. Through our business, we aim to become an integrated energy company that
contributes to the community and makes it more livable and prosperous. Based on this mission, to achieve sustainable growth andincrease corporate value over the medium to long term, the Company fulfills its social responsibilities in cooperation with its shareholders and other stakeholders, and works to enhance its
corporate governance for the purpose of conducting transparent,
fair, timely and decisive decision making. The INPEX Group madeclear its basic views and policies on corporate governance and,with the aim of ensuring transparency and fairness in the Company’s decision making, as well as realizing effective corporate governance by carrying out the proactive dissemination of
information, formulated its Corporate Governance Guidelines.
Please refer to our Web site for details.
www.inpex.co.jp/english/company/governance.html

Targets and Results of Indices Relating to PerformanceBased Compensation in FY2020

Growth Strategies for Value Creation

INPEX has adopted an Audit & Supervisory Board Member
organizational structure, under which Audit & Supervisory
Board members audit the execution of operations, which arein turn carried out by directors well versed in their field. In addition, the Company has introduced an Executive Officer System to pursue management with agility and efficiency. INPEX
frequently engages in negotiations with the governments ofoil-producing countries and overseas oil companies. This necessarily requires internal directors and executive officers who
have knowledge, expertise and international experience relating to the Company’s business and both a sound knowledgeof the Company and their particular field of expertise. Internal
directors, in principle, hold the concurrent position of executive officers. By adopting this concurrent organizational structure, the Company’s Board of Directors is better placed to
execute operations in an efficient manner. At the same time,
this structure helps to ensure effective operating oversight.
In addition to enhancing the transparency of management
and bolstering the ability of the Board of Directors to carryout its supervisory function, INPEX has appointed six of its
14-member Board of Directors from outside the Company.
Through this initiative, steps have been taken to ensure thatmanagement issues are considered and deliberated witha greater degree of objectivity from an independent standpoint. Moreover, four of the Company’s five Audit &We implemented an Executive Officer System to respond accurately and quickly to a rapidly changing management environment and the expansion of our business activities. The term ofoffice for executive officers is set to one year, the same as for
directors.

INPEX’s Vision and Value Creation

To achieve sustainable growth and increase corporate value over the medium to long term, the Company fulfills its social responsibilities in cooperation with its shareholders and other stakeholders andworks to enhance its corporate governance for the purpose of conducting transparent, fair, timely anddecisive decision making.

(1) Status of accounting audit
Name of CPA firm
Cumulative accounting
audit period
Name of CPAs
conducting accounting
audit
Accounting audit
members

Ernst & Young ShinNihon LLC
45 yearsHiroaki Kosugi
Satoshi Takagi
Takeshi Yoshida
26 CPAs, 8 persons who passed an accounting
exam, etc., and 22 others(2) Compensation paid to the CPAs
Compensation forauditing services
Compensation for
non-auditing services¥302 million
INPEX: ¥228 million;
Consolidated subsidiaries: ¥73 million¥27 million
INPEX: ¥14 million;
Consolidated subsidiaries: ¥12 million(3) Compensation paid to the network firm (excluding (2))
Compensation forauditing services
Compensation for
non-auditing services¥125 million
INPEX: —;Consolidated subsidiaries: ¥125 million¥125 million
INPEX: ¥13 million;
Consolidated subsidiaries: ¥111 million

INPEX CORPORATION Annual Report 2020

49Corporate GovernanceWith the aims of regularly verifying that the Board of Directors is functioning appropriately and identifying issues to beresolved for continuous improvement, the Company undertakes an evaluation of the effectiveness of the Board of Directors (the “Board Evaluation”) each year, and discloses
a summary of the evaluation results. Based on this policy, theSummary of evaluation results

The third-party evaluation organization has concluded that the Board of Directors secretariat has appropriately consolidated and analyzed the results ofthe evaluation, and that the challenges presented above, drawn from theseresults and analysis, have been suitably established.

INPEX CORPORATION Annual Report 2020

 udit & Supervisory Board and Audit &A
Supervisory Board Members
The Audit & Supervisory Board is composed of five Audit & Supervisory Board members, four of which come from outside.
In addition to attending meetings of the Board of Directors
and the Executive Committee, the Audit & Supervisory Board
members review the execution of business duties by directors andexecutive officers through reports given by and hearings for related departments. Furthermore, the Audit & Supervisory Board
members meet on regular and as needed bases with the Independent Auditors, and receive reports from the Independent Auditors
regarding audits. They also conduct regular meetings with the internal audit department (Audit Unit) to receive reports regarding
internal audits and the evaluation of internal controls.
To strengthen the auditing function and ensure viable corporate governance, steps have been taken to set up the Audit & Supervisory Board Members’ Office and to deploy dedicated staff. In
this manner, efforts are being made to promote collaboration
along the aforementioned terms between Audit & Supervisory
Board members, the Audit Unit and the Independent Auditors.
Moreover, we have constructed a system to strengthen the monitoring function through periodic meetings with representative directors and directors.

Attendance at board
meetings for the fiscal year
ended December 31, 2020

Reason for appointment

Jun Yanai

Advisor of Mitsubishi Corporation
Outside Director, Kintetsu World
Express, Inc.

Norinao Iio-

Atsuko Nishimura

Outside Director, TAISEI CORPORATION

Yasushi Kimura

Senior Corporate Advisor, ENEOS
Holdings, Inc.
Outside Director, Nissan Motor Co., Ltd.

Kiyoshi Ogino

Advisor of Japan Petroleum
Exploration Co., Ltd. (JAPEX)Tomoo Nishikawa-

Hideyuki Toyama-

Possesses extensive experience and knowledge infinance, as well as professional knowledge andexperience as an attorney.

Shinya Miyake-

Possesses abundant experience and wide-ranging
knowledge in fields such as international financeand financial affairs.

Mitsuru Akiyoshi

President and CEO, Mizuho Marubeni
Leasing Corporation
Outside Director, Concordia Financial
Group, Ltd.

Possesses abundant experience and wide-ranging
knowledge in fields such as financial affairs andmanagement.

-

Possesses abundant experience as a freelance
newscaster, university lecturer, and holder of public
offices such as seats on the Advisory Committee
for Natural Resources and Energy and Industrial
Structure Council, as well as her wide-ranging
knowledge on a variety of diverse topics.

Hiroko Kiba

To utilize his rich experience and broad knowledge
in the resources/energy industry in our company’s
management.
To utilize his rich experience and broad knowledge
in the resources/energy industry in our company’s
management.
In addition to a broad base of knowledge related
to international conditions built up through her
years working as a diplomat, she is also well-versedin the fields of resources and energy. Alsonominated because we are confident she canprovide suggestions on a diverse array of topics.
To utilize his rich experience and broad knowledge
as a manager in the resources/energy industry in
our company’s management.
To utilize his rich experience and broad knowledge
in the oil and gas development industry in ourcompany’s management.
To utilize his abundance of knowledge in corporate
management based on his expertise in corporate
legal affairs cultivated through his extensive
experience as a lawyer, as well as wide-ranging
insight drawn from his legal knowledge particularlyin the field of international transactions.

Board of Directors
meetings 14/14
Board of Directors
meetings 14/14

Board of Directors
meetings 14/14

Board of Directors
meetings 14/14
Board of Directors
meetings 14/14

Board of Directors
meetings 11/11*
Board of Directors
meetings 14/14
Audit & Supervisory Board
meetings 14/14
Board of Directors
meetings 14/14
Audit & Supervisory Board
meetings 14/14
Board of Directors
meetings 14/14
Audit & Supervisory Board
meetings 14/14
Board of Directors
meetings 14/14
Audit & Supervisory Board
meetings 14/14* Attendance of director Tomoo Nishikawa represents attendance after his taking office on March 25, 2020.

Internal Committees
To further enhance the efficacy of the corporate governance function, INPEX has set up the Nomination andCompensation Advisory Committee,
the INPEX Advisory Committee,
the Compliance Committee andthe CSR Committee. In addition, the Company maintains
the Corporate HSE Committee,
the Information Security Committee andthe INPEX Value
Assurance System Committee to appropriately manage
risks associated with business operations.

Nomination and Compensation Advisory Committee
INPEX Advisory Committee
Board of Directors

CSR Committee
Corporate HSE Committee
Information Security Committee
Executive Committee

Nomination and Compensation Advisory Committee

Corporate HSE Committee

Number of meetings held in FY2020: 2
The INPEX Advisory Committee was established in October 2012 withthe aim of enhancing corporate value and the corporate governancefunction. Comprising external experts in a broad spectrum of fields, thecommittee provides the Board of Directors with multifaceted and objective advice and recommendations across a wide range of areas. Areas of
discussion and advice include international political and economic conditions, an outlook of energy conditions and ways in which to bolster
corporate governance.
The Compliance Committee was established in April 2006 with the aimof promoting compliance initiatives across the entire Group. The committee formulates fundamental compliance policies applicable to theGroup, deliberates on important matters and manages the manner inwhich compliance is practiced.

Number of meetings held in FY2020: 8

In accordance with the HSE Management System, the Corporate HSE Committee wasestablished in October 2007 to promote health, safety and environmental initiatives. In
addition to formulating corporate HSE policies and priority targets for each period, thecommittee advances HSE activities across the organization.

INPEX Advisory Committee

Number of meetings held in FY2020: 9

Number of meetings held in FY2020: 3

In April 2012, the INPEX Group established the CSR Committee with the aims of better
fulfilling its corporate social responsibility and promoting activities that contribute to
the sustainable development of society. The committee puts in place fundamental policies and formulates important measures designed to promote CSR.

The Nomination and Compensation Advisory Committee was established in January 2017 with the aim of strengthening the functional independence and objectivity as well as accountability of the Board of
Directors in connection with the nomination of and compensation paid
to directors.

Compliance Committee

INPEX Value Assurance System Committee

CSR Committee

Number of meetings held in FY2020: 5

Compliance Committee

Performance and Financial Overview

50

The Company has reported all outside directors and outside Audit & Supervisory Board members as independent directors as defined by Tokyo Stock Exchange, Inc. As a part of efforts to comply
with the Corporate Governance Code, INPEX has formulated independence standards for outside directors and outside Audit &Supervisory Board members taking into consideration the independence standards and qualifications for independent directors
issued by the Tokyo Stock Exchange. The Company determines
the independence of outside directors, including major shareholders and business partners that do not fall within the scope ofthese standards.

Officer positions held at otherorganizations

The Basis of our Value Creation

Outside Audit & Supervisory Board Members
When appointing outside Audit & Supervisory Board members,
we believe that it is important to comprehensively consider factors
such as independence, efficacy in the oversight function and professionalism. Four of the Company’s five Audit & Supervisory
Board members are appointed from external sources. Audit & Supervisory Board members possess a rich knowledge and experience in the Company’s business as well as in such fields as finance,
legal affairs and management, which they use when performing
auditing activities for the Company.

Independence of Outside Directors andOutside Audit & Supervisory Board Members

Independent
director/auditor

Growth Strategies for Value Creation

	It was concluded that the overall effectiveness of the board is sufficient, asin the previous fiscal year.
	In particular, ongoing initiatives to secure time for substantial deliberation
were positively evaluated, such as enhanced briefings provided to parttime officers prior to Board of Directors meetings, and the prior indicationof the timeframes for deliberation. In addition, a discussion on agenda
items specifically focused on themes that require discussion from a medium- to long-term perspective, a lecture and discussion on climate changeby an external expert for the Board of Directors, and meetings held online
in response to the COVID-19 pandemic all received positive evaluations,and their continuation was requested.
	The following challenges were established, as issues requiring ongoing,
short- or medium-term initiatives, in order to further enhance the effectiveness of the Board of Directors.
Further enhance discussions regarding strategies based on changes inthe business environment
Further revitalize discussions at Board of Directors meetings
Hold deeper discussions regarding the desired state of the Board of
Directors
Secure opportunities for discussion on the desired state of governancein the Group

Outside Audit & Supervisory
Board members

Outside Directors

Namesixth evaluation was conducted in FY2020. The evaluation
method and summary of the results are as follows. Based onthese evaluation results, the Company will continue to strive
to improve the effectiveness of the Board of Directors.

Monitoring of Management by Outside Directors and Audit & Supervisory Board
Members
Regarding the appointment of outside directors, we believe that it
is important to comprehensively consider a variety of factors.
These factors include the validity of business decisions and consideration of their efficacy, professionalism and objectiveness inthe oversight function in addition to the perspective of independence. As corporate managers, academics or other specialists,
our company’s six outside directors posses broad knowledge andmany years of experience as managers in such fields as resource/energy industry, finance and legal matters. Three of the outside
directors also concurrently serve as advisors to Japan Petroleum
Exploration Co., Ltd., ENEOS Holdings, Inc. and Mitsubishi Corporation, respectively, all of which are shareholders (hereinafterreferred to as “company shareholders”) of the company. As INPEX
and all the company shareholders are engaged in business activities in the same fields, there is a possibility of conflicts of interest
arising. Accordingly, the company recognizes the necessity to pay
particular attention to corporate governance. INPEX considers it
important for all its directors including outside directors to carryout their management duties while maintaining a high level ofawareness at all times on matters including the obligation to prohibit competition under the Companies Act, the appropriate handling of transactions with conflicts of interest and the preventionof information leakage, etc. The company has therefore obtained
pledges confirming these points from all directors including thethree outside directors referred above.

Outside Directors / Outside Audit & Supervisory Board Members: Concurrently Held Positions and Reason for Appointment

Outside directors

Evaluation method
An interim review of the issues identified in the Board Evaluation for the previous fiscal year was undertaken at the meeting with outside directors and Audit& Supervisory Board members held in August 2020. The specific implementation method for this fiscal year’s Board Evaluation was also discussed, including
the appointment of a third-party evaluation organization. As a result, it was decided to appoint a major external law firm as a third-party evaluation organization to confirm the appropriateness of the survey content and composition, themethod of consolidation and analysis by the Board of Directors office, and proposals for improvement. Subsequently, this fiscal year’s implementation policy
and evaluation items were deliberated at the meeting of the Board of Directors
held in November, including the content and composition of the survey prepared by the Board of Directors office based on review by the third-party evaluation organization. The evaluation items included the self-evaluation of eachdirector and Audit & Supervisory Board member, the composition, operations,roles and responsibilities of the Board of Directors and operations of the Nomination and Compensation Advisory Committee, as well as the status of improvement of issues identified in the previous evaluation. An anonymous
survey (online) of all directors and Audit & Supervisory Board members was
conducted in December. In order to obtain more specific views and opinionsfrom them, they were encouraged to comment on many of the questions.
Subsequently, results of the survey were consolidated and analyzed by the
Board of Directors secretariat. After receiving confirmation and indications regarding the appropriateness of the method of consolidation and analysis andthe draft improvement proposals from the third-party evaluation organization,
the results of the consolidation and analysis as well as issues and initiatives forthe future were discussed at a meeting among the outside directors, Audit &Supervisory Board members and the representative director in January 2021.
Based on this discussion, the following evaluation results were confirmed at theBoard of Directors meeting held in February 2021.

INPEX’s Vision and Value Creation

Evaluation of the Effectiveness of the Board of Directors

Information Security Committee

Number of meetings held in FY2020: 2

The Information Security Committee was established in November 2007 to consider
and determine all appropriate measures necessary to maintain, manage and strengthen
information security. The committee also takes steps to address any incident relating to
information security and to put in place preventive measures.

INPEX Value Assurance System CommitteeNumber of meetings held in FY2020: 6
The INPEX Value Assurance System Committee was established in May 2014 to contribute to the Company’s decision-making process with respect to confirmation of thestatus of preparations in connection with important milestones of those oil and natural
gas upstream business projects in which INPEX participates, and the improvement andpromotion of project.

INPEX CORPORATION Annual Report 202051

Performance and Financial Overview

Cash flows for the fiscal year ended December 31, 2020
Regarding cash flows for the fiscal year ended December 31, 2020, including those of Ichthys downstream IJV,
while net cash provided by operating activities before
exploration expenditure1 was impacted by a significant
decline in oil prices, we secured ¥349.2 billion due tosmooth production operations at Ichthys. Net cash used
in investing activities1 was ¥167.2 billion as a result of

While carefully assessing crude oil
price fluctuations, we will strive torealize our consolidated earnings
forecasts for the fiscal year ending
December 2021 and build a strong
financial base.

INPEX’s Vision and Value Creation

Message from the Senior Vice President,
Finance & Accounting

promoting cost reductions and optimizations amid alow oil price environment. We were therefore able tosecure a free cash flow1 of ¥182.0 billion in the fiscal year
ended December 31, 2020. In addition, net cash used infinancing activities was ¥195.4 billion due to repaymentsof borrowings and other factors.

Cash flows for the fiscal year ended December 31, 20201(¥ billion)

349.2

600

Growth Strategies for Value Creation

500
400

(167.2)300

FCF+182.0

212.3
200

199.0
(195.4)100
0Director, Managing
Executive Officer,
Senior Vice President,
Finance & Accounting

recording of an impairment loss of ¥189.9 billion as aresult of the deterioration of the business environment
associated with the fall in crude oil prices, we recorded
a net loss attributable to owners of parent of ¥111.6 billion in the current fiscal year, down from ¥167.3 billion inincome for the same period of the previous fiscal year,
marking the first time we ended in the red since our integration in 2008. Net income attributable to owners ofparent, excluding the effects of one-off losses such as
impairment losses, was ¥54.6 billion.

mainly due to an increase in borrowings. Net assets asof December 31, 2020 decreased by ¥295.8 billion from
December 31, 2019 to ¥3,001.3 billion, mainly due toa decrease in shareholders’ equity as a result of recording losses and a decrease in accumulated other comprehensive income. As of December 31, 2020, our net
borrowings, including those for Ichthys downstream operating companies, decreased by approximately ¥200.0
billion from December 31, 2019 to approximately¥2,100.0 billion.

Assuming a crude oil price average of 60.30 US dollars
per barrel and an exchange rate average of 107.5 Japanese yen against the US dollar for the full year, we
expect to generate net sales of 1,055 billion yen anda net income attributable to owners of parent of 140 billion yen, as outlined in our consolidated financial forecast for the fiscal year ending December 2021.
Regarding the cash flow situation for fiscal year 2021
including the Ichthys downstream IJV, cash flow fromoperations before exploration investment is expected
to be approximately 525 billion yen, and cash flow frominvestment is expected to be approximately 250 billion
yen. Free cash flow is expected to be approximately 275
billion yen.

Consolidated financial forecast for the fiscal year ending
December 2021
FY 2020/12
Results

FY 2021/12
OutlookNet sales

771.0 billion

1,055.0 billion

Operating income

248.4 billion

452.0 billion

Ordinary income

257.3 billion

483.0 billion

Net income (loss)
attributable toowners of parent-111.6 billion

140.0 billion

(JPY)

(JPY)
(JPY)

Performance and Financial Overview

INPEX CORPORATION Annual Report 2020

The Basis of our Value Creation

52

Available funds
as of Dec. 31, 2020(as of May 13, 2021)

Financial position as of December 31, 2020

Note: Figures on page 52 and 53 are rounded down.

Cash flows fromfinancing activities2

Consolidated financial forecast for the fiscal year ending December 2021

Overview of the fiscal year ended December 31, 2020

Regarding the status of our financing, rating agencies
have assessed our liquidity level as “high,” and we havebeen able to secure the necessary funds even amid
a low oil price environment. Total assets as of December 31, 2020 decreased by ¥215.4 billion from December 31, 2019 to ¥4,634.5 billion, primarily due to therecording of an impairment loss on fixed assets. Total
assets for off-balance sheet Ichthys downstream IJV
were ¥3,601.4 billion.
Total liabilities as of December 31, 2020 increased by¥80.3 billion from December 31, 2019 to ¥1,633.1 billion,

Cash flows from
Cash flows fromoperatinginvesting activities
activities before(incl. exploration
exploration expenditure
expenditure)

1. Differs from cash flow based on institutional accounting practices due to the inclusion of the Ichthys downstream IJV, an equity-method affiliate.
2. Including translation adjustments related to available funds

Daisuke Yamada

In the fiscal year ended December 31, 2020, the average Brent crude oil price, a benchmark index for theGroup, fell by 32.7% compared with the previous fiscal
year to US$43.2 due to the impact of the COVID-19
pandemic and the resulting decline in energy demand.
Given these impacts, the Group’s performance for the
fiscal year under review consisted of net sales of ¥771.0
billion, down 34.2% year on year, an operating incomeof ¥248.4 billion, down 55.6%, and a ordinary income of¥257.3 billion, down 56.0%. In addition, due to the

Available funds
as of Dec. 31, 2019

(JPY) iffers from cash flow based on institutional accounting practices due to the inclusion of the Ichthys downstream IJV, an equity-method affiliate.
Note: D

Impact of crude oil price and foreign exchange rate fluctuations on net income attributable to owners of parent for theyear ending December 31, 20211
Brent Crude Oil Price: $1/bbl
increase (decrease) 2
At beginning of 1Q+¥6.6 billion (–¥6.6 billion)
The impact on net income will change inFY2021 as below;
At beginning of 2Q: +¥4.6 billion (–¥4.6 billion)
At beginning of 3Q: +¥2.4 billion (–¥2.4 billion)
At beginning of 4Q: +¥1.0 billion (–¥1.0 billion)

Exchange Rate: ¥1 depreciation(appreciation) against the U.S. dollar3+¥2.0 billion (–¥2.0 billion)

1. The sensitivities represent the impact on net income for the year ending December 31, 2021 as of
the beginning of the fiscal year against a $1/bbl increase (decrease) in the Brent crude oil price on
average and a ¥1 depreciation (appreciation) against the U.S. dollar. These are based on the financial situation mainly of existing production projects at the beginning of the fiscal year. These are forreference purposes only and the actual impact may change due to fluctuations in production volumes, capital expenditures and cost recoveries, and may not be constant, depending on crude oil
prices and exchange rates.
2. Net income sensitivity is determined by fluctuations in the oil price and is subject to the average
price of crude oil (Brent). A breakdown of quarterly sensitivity figures is listed below taking into
consideration certain natural gas sales applying oil prices on a delayed basis:
At beginning of 1Q: +¥6.6 billion (1Q: +¥1.0 billion, 2Q: +¥1.2 billion, 3Q: +¥2.2 billion, 4Q:+¥2.2 billion)
At beginning of 2Q: +¥4.6 billion (1Q: –, 2Q: +¥1.0 billion, 3Q: +¥1.4 billion, 4Q: +¥2.2 billion)
At beginning of 3Q: +¥2.4 billion (1Q: –, 2Q: –, 3Q: +¥1.0 billion, 4Q: +¥1.4 billion)
At beginning of 4Q: +¥1.0 billion (1Q: –, 2Q: –, 3Q: –, 4Q: +¥1.0 billion)
3. This is a sensitivity on net income determined by fluctuation of the yen against the U.S. dollar andis subject to the average exchange rate. On the other hand, sensitivity related to the valuation ofassets and liabilities denominated in the U.S. dollar on net income incurred by foreign exchange
differences between the exchange rate at the end of the fiscal year and the end of the previous
fiscal year is largely neutralized.

INPEX CORPORATION Annual Report 202053

11-Year Financial Information
INPEX’s Vision and Value Creation

INPEX CORPORATION and Consolidated Subsidiaries
The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic computation only,at ¥103.52=US$1.00, the approximate exchange rate in effect as of December 31, 2020.
Millions of yen

Millions of yen

Millions of yen

Thousands of
U.S. dollars

2011/3

2012/3

2013/3

2014/3

2015/3

2016/32017/3

2018/3

2019/3

2019/12*1

2020/122020/12¥943,080¥1,186,732¥1,216,533¥1,334,626¥1,171,227¥1,009,564¥874,423¥933,702¥971,389¥1,000,005¥771,046$7,448,280

Cost of sales

334,833

395,443426,326

490,417525,444526,758

453,847

498,039

413,300

424,702439,852

4,248,956

Gross profit

608,247

791,289

790,207844,209645,783

482,806

420,576435,663

558,089575,303

331,194

3,199,323

Operating income

529,743

709,358

693,448

733,610534,886

390,139

336,453

357,363474,282498,641

248,471

2,400,222

Income before income taxes

508,587

767,039

718,146

750,078

540,023

328,887

327,525

307,300

494,043

510,292

67,394651,023¥128,699¥194,001¥182,962¥183,691¥77,820¥16,777¥46,168¥40,363¥96,106¥123,550¥(111,699 )$(1,079,008 )¥492,932¥908,702¥1,106,504¥1,140,204¥1,342,410¥984,345¥942,960¥466,351¥457,712¥419,802¥387,093$3,739,306

Tangible fixed assets

379,862

383,698584,541

951,779

1,497,622

1,752,615

1,928,598

2,044,620

2,278,995

2,275,372

2,069,783

19,994,039

Intangible assets

249,111233,318

380,156

439,179

458,770

541,471521,253

541,503

520,213535,330

441,837

4,268,131

Investments and other assets

1,558,475

1,540,680

1,544,958

1,506,977

1,200,352

1,091,411

919,363

1,199,913

1,536,626

1,619,489

1,735,804

16,767,812

Total assets

2,680,380

3,066,398

3,616,159

4,038,139

4,499,154

4,369,842

4,312,174

4,252,387

4,793,546

4,849,995

4,634,518

44,769,300

Current liabilities

254,729

367,844414,977375,670

365,212319,128

297,465

305,439

372,001

401,483

339,288

3,277,511

Long-term liabilities

328,268

384,361

530,198

666,432

845,238

871,911807,166

788,079

1,163,961

1,151,334

1,293,890

12,498,937¥2,097,383¥2,314,193¥2,670,984¥2,996,037¥3,288,704¥3,178,803¥3,207,543¥3,158,869¥3,257,584¥3,297,176¥3,001,339$28,992,841¥274,094¥320,692¥252,347¥213,514¥216,749¥183,708¥275,810¥278,539¥238,566¥274,730¥292,915$2,829,549(844,511 )(280,864 )(489,870 )(395,555 )(81,087 )(543,534 )

53,484(351,908 )(682,006 )(288,740 )(417,189 )(4,030,032 )

548,057

29,294137,069

48,961(4,178 )

156,726(65,428 )

34,742405,185(48,615 )

126,747

1,224,372¥182,025¥249,233¥199,859¥117,531¥260,978¥53,813¥316,791¥276,080¥239,653¥173,774¥172,405$1,665,426¥1,367.40¥1,492.27*¥1,699.10*¥1,911.25*¥2,099.95¥2,008.34¥2,015.38¥1,997.24¥2,058.95¥2,082.43¥1,874.08$18.1015.00*

17.50*

17.50*

18.00*

18.00

18.00

18.00

18.00

24.00

30.00

24.00

0.23

125.78*¥53.29¥11.49¥31.61¥27.64¥65.81¥84.61¥(76.50 )$(0.74 )Results of operations
Net sales

Growth Strategies for Value Creation

Net income (loss) attributable toowners of parent
Financial position
Current assets

The Basis of our Value Creation

Net assets
Cash flows
Cash flows from operating
activities
Cash flows from investing
activities
Cash flows from financing
activities
Cash and cash equivalents at endof the period

Net assets per share (Yen)
Cash dividends per share (Yen)
Earnings (loss) per share (EPS) (Yen)¥

102.08*¥

132.84*¥

125.29*¥Performance and Financial Overview

Per share data

*Retrospectively adjusted for a stock split at a ratio of 1:400 of common stock on October 1, 2013.

Financial indicators
Net debt / Net total capital
employed3 (%)(48.9)%(60.7)%(43.9)%(31.9)%(16.8)%(8.1)%

0.9 %

11.8 %

21.7 %

22.3 %

26.0 %

26.0 %

Equity ratio4 (%)

74.5

71.1

68.6

69.1

68.2

67.1

68.3

68.6

62.7

62.7

59.0

59.0

D/E ratio5 (%)

13.7 %

14.6 %

19.2 %

20.9 %

22.1 %

25.3 %

23.4 %

24.0 %

38.0 %

36.8 %

45.1 %

45.1 %

Notes
1. Effective from the year ended December 31, 2019, the Company changed its consolidated fiscal year-end from March 31 to December 31. As a result of
this change, the year ended December 31, 2019 was a period of nine months from April 1 to December 31, 2019.
2. The amounts in millions of yen and in thousands of U.S. dollars, as of and for the year ended March 31, 2019 and prior periods are rounded off. On theother hand, such amounts as of and for the year ended December 31, 2019 and onwards are rounded down and therefore the totals do not necessarily
agree with the sum of the individual account balances for the corresponding period.

54

INPEX CORPORATION Annual Report 2020

3. Net debt / Net total capital employed = Net debt / (Net assets + Net debt)
4. Equity ratio = Net assets excluding non-controlling interests / Total assets
5. D/E ratio = Interest-bearing debt / (Net assets – Non-controlling interests)

INPEX CORPORATION Annual Report 2020

55

Project Overview by Region

THAILAND

Preparation for development

CAMBODIAMALAYSIA

Under exploration

6 Block 05-1b/05-1c(Sao Vang and
Dai Nguyet Gas Field)

OP

Operator project
Key group company
headquaters and offices

PALAU

SK-10

4 Tangguh LNG Project(Berau Block)SingaporeIn the Asia and Oceania region, INPEX is the operator of twolarge-scale liquefied natural gas (LNG) projects—Ichthys andAbadi—and is actively involved in exploration projects seeking further growth in the region.

Under development

PHILIPPINESSINGAPORE
West Sebuku Block

Sebuku Block(Ruby Gas Field)

Jakarta

INDONESIA

2 Abadi LNG
Project OP

3 Prelude FLNG Project(WA-44-L)
1 Ichthys LNG Project OP(WA-50-L/WA-51-L)

DarwinEP(A)318 OP(Coniston Oil Field)

WA-35-L (Van Gogh Oil Field)
WA-43-L(Ravensworth Oil Field)

CPF Ichthys
Explorer

AUSTRALIA

Van Gogh Oil Field,
Ravensworth Oil Field
and others

The Abadi LNG Project is based on an onshore LNG development scheme that INPEX as the operator is preparing for development alongside Shell in the Masela Block offshore Indonesia. The project is expected to produce approximately 9.5 million tonsof LNG per year and up to approximately 35,000 barrels of condensate per day. The project will also supply 150 million cubicfeet of natural gas per day via pipeline to address local demand for natural gas.
INPEX acquired a 100% interest in the Masela Block in November 1998 through an open
bid conducted by the Indonesian authorities. INPEX subsequently conducted exploration
INDONESIA
activities as the operator, discovering the Abadi Gas Field through the first exploratory well
Arafura Sea
drilled in 2000. Following exploration, evaluation activities and development studies, INPEX
conducted Pre-FEED work from March 2018 based on an onshore LNG development
Abadi Gas Field
scheme envisaging an annual LNG production capacity of 9.5 million tons. INPEX submitted
a revised plan of development in June 2019 and received approval from the Indonesian auTimor Sea
thorities in July 2019. Alongside the approval of the revised development plan, the Indonesian authorities also approved a 20-year extension of the production sharing contract (PSC)
AUSTRALIA
Gas field
and the application for a seven-year additional time allocation, extending the term of the
Darwin
200km
0
PSC until 2055. INPEX will undertake front-end engineering design (FEED) work and is aiming to reach production startup in the latter half of the 2020s.
Contract area
(block)Perth

1Ichthys LNG Project

MaselaWA-50-L/
WA-51-L

Project
status

Production capacity

WA-56-R
WA-80-R
WA-281-P
WA-74-R/WA-79-R/
WA-81-R/

Interest owned(*Operator)
INPEX Browse E&P Pty Ltd 40% Santos* 60%

Underexploration(blocks underappraisal on
the discovery
of gas andcondensate)

WA-274-P

INPEX Browse E&P Pty Ltd* 60% TOTAL 40%
INPEX Browse E&P Pty Ltd 26.6064% Santos* 63.6299% Beach 9.7637%
INPEX Browse E&P Pty Ltd 29.5% Santos* 70.5%
INPEX Browse E&P Pty Ltd 40% Santos* 60%
INPEX Browse E&P Pty Ltd
INPEX Browse E&P Pty Ltd* 62.245% TOTAL 30.000% CPC 2.625%(October 21, 2013)
Tokyo Gas 1.575% Osaka Gas 1.200% Kansai Electric Power 1.200%
JERA 0.735% Toho Gas 0.420%

WA-285-P

WA-343-P

Venture company(established)

INPEX Browse E&P Pty Ltd* 100%

Under
exploration

INPEX Browse E&P Pty Ltd* 100%

AC/P36INPEX Browse E&P Pty Ltd* 50% Murphy 50%

AC/P66
EP(A)318

56

INPEX CORPORATION Annual Report 2020

INPEX Oil & Gas
Australia Pty Ltd(February 28, 2012)

INPEX Browse E&P Pty Ltd* 100%

Preparation for development INPEX Masela, Ltd. (December 2, 1998)

INPEX Masela* 65%, Shell 35%

Prelude FLNG Project (WA-44-L)

In June 2012, INPEX acquired a 17.5% interest in the Prelude FLNG (floating LNG) Projectfrom Shell during the project’s development stage. The Prelude FLNG Project involves the
production of approximately 3.6 million tons per year of LNG, 400 thousand tons per year of
LPG at peak and approximately 1.3 million tons of condensate per year at peak from the
Prelude and Concerto gas fields located in Block WA-44-L, approximately 475 kilometers
north-northeast of Broome, off the coast of Western Australia. Shell as the operator of thePrelude FLNG Project announced its FID in May 2011.
Following the completion and commissioning of production facilities, gas production
from the wellhead commenced in December 2018. The first condensate cargo was shippedin March 2019 followed by the first LNG cargo in June 2019. Production was temporarily suspended from February 2020 for the repair and inspection of production facilities. LNG
production has since resumed.
Contract area
(block)WA-44-L

4

Interest owned(*Operator)

Project
status

AUSTRALIAINPEX Oil & Gas
Australia Pty Ltd(February 28, 2012)

Concerto Gas Field

Prelude Gas Field

WA-44-L

Ichthys Gas-Condensate
Field
0

Venture company(established)

Production capacity

LNG: Approximately 3.6 million tons per year
LPG: Approximately 400 thousand tons per year
(at peak)In production
Condensate: Approximately 1.3 million tons per
year (at peak)

Timor Sea

40km

Gas field

Interest owned(*Operator)
INPEX Oil & Gas Australia 17.5%
Shell* 67.5% KOGAS 10.0%
OPIC 5.0%

Performance and Financial Overview

WA-84-R/WA-85-R/
WA-86-R

Project
statusInterest owned(*Operator)
INPEX Ichthys Pty Ltd* 66.245%
TOTAL 26.000% CPC 2.625%
Tokyo Gas 1.575% Osaka Gas 1.200%
Kansai Electric Power 1.200%
JERA 0.735% Toho Gas 0.420%

LNG: Approximately 8.9 million tons per year
INPEX Ichthys
LPG: Approximately 1.65 million tons per year
Pty Ltd
In production
Condensate: Approximately 100 thousand barrels(April 5, 2011)
per day (at peak)Contract area
(block)WA-494-P/
WA-532-P/
WA-533-P

Venture company(established)

3

Venture company(established)

Project status

The Basis of our Value Creation

In 1998, INPEX acquired an exploration permit in the block where the Ichthys
5 Bayu-Undan Project(PSC-TL-SO-T 19-12
Gas-Condensate Field is now located, and following development studies including(former JPDA03-12))
exploration, evaluation and FEED work, INPEX announced its FID in January 2012.
PSC-TL-SO-T 19-11
Following the completion and commissioning of production facilities, INPEX comWA-85-R
WA-74-R
menced production in July 2018 and later began shipping condensate, LNG and
AC/P66 OPliquefied petroleum gas (LPG). Production ramp up has progressed very smoothly,
AC/P36 OP
WA-274-P
WA-343-P OP
and in 2020, 122 LNG cargoes were shipped from the project’s onshore gas liqueWA-81-R
WA-56-R OP
faction plant in Darwin. Maintenance required for safe and stable operations was
WA-79-R
3 Prelude FLNG Project(WA-44-L)
conducted for approximately one month from May to June 2021. Shipments of apWA-84-R
WA-285-P OP
WA-80-R
proximately 10 LNG cargoes per month are expected in fiscal 2021.
WA-494-P OP
WA-86-R
Surrounding exploration blocks
1 Ichthys LNG Project
WA-533-P OP(WA-50-L/WA-51-L) OP
INPEX holds interests in 18 exploration blocks in the vicinity of the Ichthys Gas-ConWA-532-P OP
WA-281-P
densate Field and has engaged in exploration activities that have led to the discovery of gas in at least 9 of these blocks. Evaluation work is now being performed onthese discoveries. In the event that substantial amounts of hydrocarbons are confirmed as a result of these exploration and evaluation activities, INPEX expects to expand its business by leveraging the synergies of integration with the Ichthys LNG Project.
Contract area
(block)Abadi LNG Project

Growth Strategies for Value Creation

5 Bayu-Undan Project(PSC-TL-SO-T 19-12(former JPDA03-12))

WA-35-L & WA-55-L

2

INPEX’s Vision and Value Creation

Asia & Oceania

In production

VIETNAM

Tangguh LNG Project (Berau Block)

MI Berau B.V., jointly established by INPEX and Mitsubishi Corporation, acquired an interestin the Berau Block in October 2001. In October 2007, MI Berau Japan Ltd., also a joint venture with Mitsubishi Corporation, acquired a stake in KG Berau Petroleum Ltd., effectively
increasing INPEX’s interest in the Tangguh LNG Project to around 7.79%. In March 2005, Indonesian authorities approved an extension of the PSC and project development plans for
the Tangguh LNG Project until 2035. Following development work, the first shipments of
LNG began in July 2009. The final investment decision (FID) to expand the Tangguh LNG
Project was made in July 2016. The Tangguh LNG expansion project will add a third LNG
processing train, which is currently under construction, with production capacity of 3.8 million tons per annum.

Papua Province (Indonesia)

Berau BlockGas field
0Contract area
(block)Project
status

Production volume**

Venture company(established)Berau
In production
Tangguh Unit

Crude oil: 6 Mbbld
Natural gas: 1,131 MMcf/d

MI Berau B.V.
(August 14, 2001)

50km

Interest owned(*Operator)
Ml Berau 22.856% BP* 48.0%
Nippon Oil Exploration (Berau) 17.144% KG Berau 12.0%
MI Berau 16.3% BP* 40.22% CNOOC 13.9%
Nippon Oil Exploration (Berau) 12.23% KG Berau 8.56%
LNG Japan 7.35% KG Wiriagar 1.44%** Production on the basis of all fields and average rate of fiscal year ended December 31, 2020

INPEX CORPORATION Annual Report 202057

Project Overview by Region
Bayu-Undan Project (PSC-TL-SO-T 19-12 (former JPDA03-12))

Map includes provisional maritime boundaries

Contract area
(block)Project
statusBayu-Undan offshore facility

Venture company(established)

Production volume**

PSC-TL-SO-T 19-12
Bayu-Undan Unit

Eurasia
PL1027

PL1016NORWAYSWEDENESTONIA

IRELANDLATVIA
LITHUANIAUNITED
KINGDOM

POLANDGERMANY

LondonCZECH REP.

FRANCESPAIN

GREECE

Production volume**

Natural gas: 1.5 billion m3 peryear (expected)
In production Crude oil and condensate:
2.8 million bbl per year
(expected)

MALAYSIA

Block 05-1b/05-1c

Gas field

0

Other project1

Teikoku Oil (ConSon) Co., Ltd.
(October 29, 2004)

Teikoku Oil (Con Son) Co., Ltd. 36.92%
Idemitsu Gas Production (Vietnam) Co., Ltd.* 43.08%
Vietnam Oil and Gas Group (PetroVietnam) 20%

Venture company

Under exploration INPEX West Sebuku, Ltd.

Baku
ARMENIAAZERBAIJAN

CeyhanMediterranean
Sea
SYRIA

IRAQ

ACG OilFieldsIRAN
Oil field

INPEX South Makassar, Ltd.

Interest owned(*Operator)
INPEX South Makassar, Ltd. 15% Pearl Oil* 70%
Total 15%
INPEX West Sebuku, Ltd. 24.5% Mubadala* 75.5%
INPEX Alpha, Ltd. 47.499% Santos* 52.501%

INPEX Alpha, Ltd.
In production

INPEX Alpha, Ltd. 28.5% BHPBP* 39.999%
Santos 31.501%

Offshore North Caspian Sea Contract Area (Kashagan Oil Field and others)

In September 1998, INPEX acquired an interest in the Offshore North Caspian Sea Contract Area in Kazakhstan’s territorial waters.
The Kashagan Oil Field is located within this area in the Caspian Sea where the water reaches depths of 3-4 meters, approximately
75 kilometers southeast of Atyrau, Kazakhstan. Following the drilling of the first exploratory well in September 1999, the Kashagan
Oil Field was discovered in 2000 and commercial quantities of oil were confirmed in 2002. After development work, the shipment of
crude oil commenced in October 2016. INPEX and its partners have achieved the project’s initial production volume target of
370,000 barrels per day and are currently working to increase the daily production volume to 450,000 barrels.
Meanwhile, the presence ofhydrocarbons has been conKAZAKHSTAN
firmed in the Kalamkas, Aktote
Kairan Structure
Offshore North Caspian Sea
and Kairan structures, which arelocated adjacent to the KashaCaspian Sea
gan Oil Field. Appraisal of thesethree structures is being conAktote structure
ducted in parallel with the develKashagan Oil Field
RUSSIA
opment of the Kashagan Oil
KAZAKHSTAN
Field, with a view to expanding
TURKEYChina
Oil field
IRAN
the total production of the conGas field 0 20km
Block
INDIA
tract area.

INPEX Alpha, Ltd. 47.499% Santos* 52.501%
JX Nippon Oil & Gas
Exploration (Malaysia)
LimitedJX Nippon Oil & Gas Exploration (Malaysia) Limited 75%
Petronas 25% Share in JX Nippon Oil & Gas Exploration(Malaysia) Limited 15%

Offshore facility

Contract area
(block)Project
statusVenture company(established)

Offshore North Caspian
INPEX North Caspian Sea, Ltd.
In production
Sea(August 6, 1998)

INPEX CORPORATION Annual Report 2020

Caspian Sea

10km

Interest owned(*Operator)

WA-35-L (Van Gogh Oil Field)

58

Tbilisi

BTC Pipeline

Under exploration
Key group company
headquaters and offices

Venture company(established)West Sebuku Block

SK-10

GEORGIATHAILANDIn production

WA-35-L & WA-55-L (Coniston Oil Field)

RUSSIA

Black Sea

In production

VIETNAM

Sebuku Block

WA-43-L (Ravensworth Oil Field)

UZBEKISTANAZERBAIJAN TURKMENISTANTURKEY

Sao Vang and Dai Nguyet Gas Field

CAMBODIAKAZAKHSTAN
Atyrau2 ACG Oil Fields

3 BTC Pipeline Project

Other projects
Project status

GEORGIA

Offshore North Caspian
Sea Contract Area** Production on the basis of all fields

Contract area
(block)KAZAKHSTAN

Performance and Financial Overview

Block 05-1b/05-1c

Project
statusTURKEY

Sakhalin 1 Project

Nur-Sultan

UKRAINEBULGARIA

Zapadna-Yaraktinsky Block
Bolshetirsky Block

The Basis of our Value Creation

Contract area
(block)1 Offshore North Caspian Sea(Kashagan Oil Field and others)

ROMANIAITALY

Block 05-1b/05-1c (Sao Vang and Dai Nguyet Gas Field)

In 2004, INPEX acquired Blocks 05-1b and 05-1c, located 350
kilometers southeast of Ho Chi Minh City, Vietnam. In 2010, an
exploration well was drilled in the Dai Nguyet (DN) structureleading to the discovery of gas and condensate accumulations. In 2014, another exploration well was drilled in the Sao
Vang (SV) structure which also led to the discovery of gas andcondensate accumulations. In 2017, a development plan for
the SV/DN gas field was approved by the Vietnamese government, and sales of gas from the Sao Vang Gas Field commenced in November 2020. Development work will also
continue on the Dai Nguyet Gas Field.

BELARUS

AUSTRIA HUNGARY** Production on the basis of all fields and average rate of fiscal year ended December 31, 2020

6

RUSSIAFINLAND

Oslo

Interest owned(*Operator)
INPEX Sahul 11.378120% Eni 10.985973%
Santos* 68.437907%
Tokyo Timor Sea Resources (JERA/Tokyo Gas)
9.198000%INPEX Sahul, Ltd.
(March 30, 1993)

PL1130

PL1129INPEX Sahul 19.2458049% Santos* 80.7541951%
Crude oil: 11 Mbbld
In production Natural gas: 537 MMcf/d
LPG: 5 Mbbld

In the Eurasia region, INPEX is involved in large-scale crude oil projects in Azerbaijan(ACG Oil Fields) and Kazakhstan (Kashagan Oil Field and others). INPEX is also engaged in projects in East Siberia, some of which have transitioned to the development and production stages, including the Sakhalin 1 Project. Meanwhile, INPEX also
participates in exploration projects offshore Norway in the western Barents Sea andthe northern Norwegian Sea, with potential for growth.

Growth Strategies for Value Creation

In April 1993, INPEX acquired an interest in the former JPDA03-12 contract area, located in the Timor Sea joint petroleum development area (JPDA), which was jointly managed by Australia and East Timor. Exploration within this contract area resulted in the
discovery of oil and gas fields. Of these, studies revealed that the Undan structure and the Bayu structure, located in theadjacent former JPDA03-13 contract area, were a single structure. The interest holders unitized both contract areas in 1999, allowing joint development of the Bayu-Undan Gas-Condensate Field to proceed. The commercial production and shipment ofcondensate and LPG started in 2004 followed by LNG in February 2006. In August 2019, JPDA was abolished as a result of theratification of a maritime boundary
treaty between Australia and East
EAST TIMORINDONESIA
Timor, and the area fell under the sole
AUSTRALIA
jurisdiction of the East Timor government. In accordance with the treaty,
AUSTRALIA
discussions were held between bothgovernments and PSC contractors.
DarwinThe parties agreed to keep the same
Gas Pipeline
conditions as the former PSC and conDarwin
Bayu-Undan
sequently a new PSC with the East
Gas-Condensate Field
Timor government (Block title: PSC50km
0
Gas field
Oil field
TL-SO-T 19-12) was bound.

INPEX’s Vision and Value Creation

5

Interest owned
INPEX North Caspian Sea 7.56% Shell 16.81% Eni 16.81%
ExxonMobil 16.81% TOTAL 16.81% CNPC 8.33% KMG 16.87%

INPEX CORPORATION Annual Report 2020

59

Project Overview by Region
ACG Oil Fields

Contract area
(block)ACG

Project
statusVenture company(established)

Interest owned(*Operator)

INPEX Southwest Caspian Sea, Ltd.
(January 29, 1999)

INPEX Southwest Caspian Sea 9.31%
BP* 30.37% MOL 9.57% SOCAR 25.00%
Equinor 7.27% ExxonMobil 6.79%
TPAO 5.73% Itochu 3.65% ONGC 2.31%

Production volume**

In production Crude oil: 477 Mbbld

Middle East & Africa
In the Middle East, the Onshore Concession and Offshore Oil Fields located near Abu Dhabi in the United ArabEmirates are contributing substantially to the Company’s oil production capacity. In Africa, oil production is ongoingat various locations including the offshore Angola Block 14.
SYRIA

SAUDI
ARABIA

NIGER

SUDAN

ERITREA

CHADOP

Abu Dhabi

UNITED
ARAB
EMIRATES

OMAN

YEMEN

1 Abu Dhabi Onshore Concession

NIGERIACENTRAL
AFRICAN REP.

SOUTH
SUDAN

ETHIOPIACAMEROONSOMALIAUGANDA

CONGO

KENYA

DEM.REP.
OF CONGO

Angola Block 14

GEORGIAIn production

Caspian Sea

1

BTC Pipeline
IRAN

CeyhanCYPRUSSYRIA

Mediterranean Sea

IRAQ

200km

Pipeline

Shipping terminalInterest owned(*Operator)
INPEX BTC Pipeline 2.5% BP* 30.1%
Azerbaijan (BTC) Limited 25% MOL 8.9%
Equinor 8.71% TPAO 6.53% Eni 5% TOTAL 5%
Itochu 3.4% ExxonMobil 2.5% ONGC 2.36%

INPEX BTC Pipeline, Ltd.
(October 16, 2002)

Operator project
Key group company
headquaters and offices

Abu Dhabi Onshore Concession

INPEX acquired a 5% interest in the ADCO Onshore Concession in Abu Dhabi in April 2015 following its participation in a bid.
INPEX also concluded a 40-year agreement, effective January 1, 2015, with the Supreme Petroleum Council of the Emirate of
Abu Dhabi and Abu Dhabi National Oil Company (ADNOC). The concession contains one of the world’s largest deposits of oil.
Stable production of crude oil is currently under way from twelve deposits, and plans are being considered to further increase
the daily production capacity from its current two million barrels per day.
0
Oil fields in production

60km

Performance and Financial Overview

Venture company(established)

Under exploration
OP

Baku
ARMENIAAZERBAIJAN
TURKEY

Under development

ANGOLA

TbilisiBlack Sea

TURKEYTANZANIA

The Basis of our Value Creation

Offshore D.R. Congo BlockRUSSIARUSSIA0BTC Pipeline Project

PAKISTAN

ALGERIABTC Pipeline ProjectContract area
(block)KUWAIT

EGYPT

3 Onshore Block 4

MALI

AFGHANISTAN

2 Abu Dhabi Offshore Oil Fields

JORDAN

LIBYA

GABON

The 1,770-kilometer BTC Pipel i n e s t re t c h e s f ro m B a k u i n
Azerbaijan on the coast of the
Caspian Sea to Ceyhan in Turkey.
Full-scale operations commenced in June 2006. The
pipeline has a transportation capacity of 1.2 million barrels perday, and mainly transports crude
oil produced in the ACG oil
fields in Azerbaijan.

IRAN

Block 10

El Ouar I / II Block** Production on the basis of all fields and average rate of fiscal year ended December 31, 2020

3

IRAQ

Growth Strategies for Value Creation

INPEX acquired an interest in the Azeri- Chirag-Deepwater Gunashli (ACG) oil fields in the south Caspian Sea offshore Azerbaijan in April 2003. At the ACG oil fields, oil is being produced at the Chirag, the Central Azeri, the West Azeri, the East Azeri, theDeepwater Gunashli and the West Chirag locations. In September 2017, INPEX and its partners agreed with the State Oil Company of the Azerbaijan Republic (SOCAR) to extend the duration of the production sharing agreement (PSA) for the ACG oil
fields by 25 years until December 31, 2049. The revised PSA came into effect in January 2018.
In April 2019, INPEX and its
partners made the final investCaspian Sea
AZERBAIJAN
ment decision (FID) on the
Baku
further development of the AzeACG Oil fields
ri- Chirag-Deepwater Gunashli(ACG) oil fields through the comDeepwater
Gunashli Field
missioning and deployment of
Chirag Field
KAZAKHSTAN
a new production platform. The
Azeri Field
RUSSIAnew platform is expected to
UZBEKISTANAZERBAIJAN
commence production in 2023
Oil field
TURKMENISTAN
Blockwith the aim of expanding thePipelines
IRAN
volume of proved reserves and
50km
0Offshore production facility
enhancing the project’s value.

INPEX’s Vision and Value Creation

2

Abu Dhabi

Undeveloped oil fields
Crude oil pipelines

Other projects
Contract area
(block)Project status

Sakhalin 1
Zapadno-Yaraktinsky Block/Bolshetirsky BlockIn production

Venture company

Interest owned(*Operator)

Japan South Sakha Oil Co., Ltd.
(JASSOC)JASSOC 49% INK* 51% Share in JASSOC 24.998%

PL1027INPEX NORGE AS 20% Lundin* 40% DEA 20% DNO 20%

PL1016INPEX NORGE AS 40%, OMV* 60%

PL1130
PL1129Under
exploration

United Arab Emirates

Sakhalin Oil and Gas
SODECO 30% ExxonMobil* 30% ONGC 20% Rosneft 20%
Development Co., Ltd. (SODECO) Share in SODECO 6.08%

INPEX NORGE AS

Saudi Arabia

INPEX NORGE AS* 60% M Vest Energy 20%
Wintershall Dea Norge 20%
INPEX NORGE AS 30% Wintershall Dea Norge* 40%
Lundin Energy Norway 30%

Oil processing facility

Contract area
(block)Abu Dhabi Onshore
Block

60

INPEX CORPORATION Annual Report 2020

Project status
In production

Venture company(established)
JODCO Onshore Limited(April 15, 2015)

Interest owned
JODCO 5% ADNOC 60% TOTAL 10%
BP 10% CNPC 8% NPIC 4% GS 3%

INPEX CORPORATION Annual Report 2020

61

Project Overview by Region

In production
Preparation fordevelopment
Under exploration

Shale Gas Project in Canada

Abu Dhabi Offshore Oil Fields

Contract area
(block)Project
statusTarget Production
Capacity
Approximately 450
thousand barrels per day

Upper Zakum Oil
Field

Approximately 1 million
In production barrels per day

Satah Field/ Umm
Al-Dalkh Oil Fields

Approximately 25
thousand barrels per day/ Approximately 20
thousand barrels per day

3

Interest owned
JODCO 10% ADNOC 60%
Consortium of three Indian companies 10%
CNPC 10% TOTAL 5% Eni 5%

JODCO Lower Zakum Limited(January 25, 2018)

JODCO 12% ADNOC 60%
ExxonMobil 28%

Japan Oil Development Co., Ltd.
(JODCO)(February 22, 1973)

Onshore Block 4
Onshore Block 4
Abu Dhabi

SAUDI ARABIAOMANUNITED ARAB
EMIRATES

Block0Contract area
(block)Onshore Block 4

Project status
Under exploration

JODCO Exploration Limited(February 6, 2019)

OMAN

100km

Venture company(established)

Interest owned
JODCO 100%

Other projects
Project status
In production

Offshore D.R. Congo Block62

 ight Oil ProjectT(Eagle Ford shale play)

San Antonio
DallasINPEX is steadily producing and marketing crude oil and gas
in the Eagle Ford Shale Oil Project it acquired in the State ofTexas in the United States in April 2019. Most of the assets arelocated in Karnes County, Texas, considered to be a highly
productive area for crude oil within the Eagle Ford shale play,which has long hosted a concentration of tight oil and shalegas development activity. INPEX is the operator of the project, with the exception of a portion of the assets.
Contract area
(block)Eagle Ford shale play,southern Texas, US

Project
statusIn production

Houston
Keathley Canyon
Block 874/875/918/919 (Lucius Oil Field,
Hadrian North Oil Field)

San Antonio
R1.4 Block 3(Perdido)

Keathley Canyon Block 921/965
Walker Ridge Block 881/925

MEXICO

R2.4 Block 22 (Salina)

2 Lucius Oil Field,
CaracasHadrian North Oil Field,
and Exploration Blocks in
the Gulf of Mexico VENEZUELA

Carabobo Block,
Project 3
SURINAME

BRAZILSan Antonio

PERU

GonzalesHouston

BOLIVIA40km

0BM-ES-23

Rio de Janeiro

WilsonPARAGUAY

Atascosa

KarnesVenture company(established)

Crude oil: 4 Mbbld
Natural gas: 8 MMcf/d

INPEX Eagle Ford LLC(2019)URUGUAY
Shale oilproject
Eagle Ford
Shale play

La Salle

Production volume*

ARGENTINACHILEInterest owned
With the exception of some areas, INPEX
holds a 100% interest as the Operator* Production on the basis of all fields and average rate of fiscal year ended December 31, 2020

Lucius Oil Field, Hadrian North Oil Field, and Exploration Blocks in the Gulf of Mexico

In August 2012, INPEX acquired an interest in the Lucius Deepwater Project in the U.S.
Gulf of Mexico from U.S.-based Anadarko Petroleum Corporation (currently Occidental
Petroleum Corporation) and joined the development and production activities in that oilfield. Oil and gas production at the Lucius Oil Field has proceeded steadily since its commencement in January 2015. The Hadrian North Oil Field is adjacent to the Lucius Oil
Field and, with the unitization of the two oils fields in 2017, it was decided that the Hadrian North Oil Field will be jointly developed using the production facilities at the Lucius
Oil Field. Crude oil and gas production at the Hadrian North Oil Field has proceeded
steadily since its commencement in April 2019. In February 2021, INPEX additionally acquired a portion (approximately 2.35%) of the participating interest previously held by
ExxonMobil. INPEX is also conducting exploration activities in multiple blocks in the
Mexican sector of the Gulf of Mexico.
Contract area (block)

Project
statusKeathley Canyon Blocks
874/875/918/919 (Lucius Oil
Field, Hadrian North Oil Field)

In production

R1.4 Block 3 (Perdido)
R2.4 Block 22 (Salina)

Venture company(established)

Production volume**

Crude oil: 42 Mbbld
INPEX Americas, Inc.
Natural gas: 45 MMcf/d (May 30, 2003)

Under
exploration

INPEX E&P Mexico PB-03,
S.A. de C.V. (August 6, 2018)

UNITED STATESBlocks 874/875/918/919
Lucius Oil Field,
Hadrian North Oil Field

MEXICO

R1.4 Block 3(Perdido)
R2.4 Block 22 (Salina)

01,000kmInterest owned (*Operator)
INPEX Americas, Inc. 10.10769%
Occidental* 63.81835%
Other 26.07396%
INPEX E&P Mexico PB-03 33.3333%
Chevron* 33.3334% Pemex 33.3333%

INPEX E&P Mexico 35%
INPEX E&P Mexico,
S.A. de C.V. (January 25, 2017) Chevron* 37.5% Pemex 27.5%** Production on the basis of all fields and average rate of fiscal year ended December 31, 2020

Contract area
(block)Block 14

1

1 Tight Oil Project(Eagle Ford shale play) OP

Performance and Financial Overview

INPEX participated in the first-ever block bid round conducted by the Abu
Dhabi National Oil Company (ADNOC) in Abu Dhabi in the United Arab Emirates in 2018 and was exclusively awarded Onshore
Block 4 as the operator.
IRAQ
IRAN
Work is currently under way to appraise theblock and prepare for drilling, with drilling comSAUDI
mencing in May 2021.
ARABIAINPEX is engaged as the operator in the Tight Oil Project in the State ofTexas in the United States and the Lucius Deepwater Project in the U.S.
Gulf of Mexico (Lucius and Hadrian North Oil Fields). INPEX is also engaged in various exploration projects in the Mexican sector of the Gulf of
Mexico.

2

JODCO 40% ADNOC 60%

UNITED STATESOF AMERICA

The Basis of our Value Creation

Lower Zakum Oil
Field

Venture company(established)

Americas

Venture company

Interest owned(*Operator)

Angola Block 14 B.V

Angola Block 14 B.V 20% Chevron* 31%
Sonangol 20% Eni 20% Galp 9%

Teikoku Oil (D.R. Congo) Co., Ltd.

Teikoku Oil (D.R. Congo) 32.28% Perenco* 67.72%

El Ouar I / II Block

Under development

Teikoku Oil Algeria (El Ouar) Co., Ltd.

Teikoku Oil Algeria (El Ouar) 10.29%
Sonatrach* 67.33% Eni 22.38%

Block 10

Under exploration (blocks
where oil/gas
accumulations wereconfirmed)

INPEX South Iraq, Ltd.

INPEX South Iraq 40% Lukoil* 60%

INPEX CORPORATION Annual Report 2020

Growth Strategies for Value Creation

INPEX has been engaged in the development and production of oil fields offshore Abu Dhabi in the United Arab Emirates since1973. In January 2014, we extended our concession agreement for the Upper Zakum Oil Field by 15 years. Subsequently, in November 2017, we extended the plan to increase the oil field’s production capacity to one million barrels per day and our concession agreement by a further ten years. In February 2018, we newly acquired an interest in the Lower Zakum Oil Field concession
and extended our existing concession agreements for the Satah and Umm Al-Dalkh oil fields by 25 years. INPEX is now engaged
in the development and production of four oil fields offshore Abu Dhabi, namely the Upper Zakum Oil Field, which is one of thelargest in the world, as well as the Lower Zakum, Satah, and Umm Al-Dalkh oil fields.
The crude oil produced in the Upper Zakum, Satah and Umm Al-Dalkh oil fields is transported to Zirku Island, about 60 kilometers from the Upper Zakum oil field. There, the crude oil is processed before being stored and shipped as Upper Zakum
Crude Oil. The crude oil produced in
60km
0
the Lower Zakum Oil Field is transported to Das Island, about 90 kilometers
Satah Field
Das Island Upper Zakum Oil Field
away, where it is processed before beLower Zakum Oil Field
ing stored and shipped as Das Crude
Oil. INPEX was appointed as the asset
Abu Dhabi
Zirku Island
leader of the Lower Zakum Oil Field
concession by ADNOC. As asset leader,
Umm Al-Dalkh Field
INPEX plays a leading role in advancing
development and is working closelywith ADNOC and its partners to lift the
Oil field
United Arab Emirates
oil field’s production capacity to 450
Subsea pipeline
Zirku Island
thousand barrels per day.

Key group company
headquaters and offices

INPEX’s Vision and Value Creation2

Operator projectOP

Hangingstone Block

CANADA

Other projects
Contract area
(block)Interest owned(*Operator)

Project status

Venture company

Carabobo Project 3 Block

Preparation for development

Japan Carabobo
UK Ltd.

Japan Carabobo UK 5% CVP* 60% Chevron 34%
Suelpetrol 1%

BM-ES-23

Under exploration (blocks
where oil/gas accumulations
were confirmed)

INPEX Petroleo
Santos Ltda.

INPEX Petroleo Santos 15% Petrobras* 65% PTTEP 20%

Shale Gas Project

Production temporarilysuspended

INPEX Gas British
Columbia Ltd.

INPEX Gas British Columbia 40% CNOOC* 60%

Hangingstone BlockIn production

Japan Canada Oil
Sands Ltd.

Japan Canada Oil Sands* 75% CNOOC 25%

Keathley Canyon Block 921/965
Walker Ridge Block 881/925

Under exploration

INPEX USOffshore, LLC

INPEX US Offshore 40% Occidental* 60%

INPEX CORPORATION Annual Report 202063

Yabase Oil Field
Akita Prefecture

Project Overview by RegionJapan

INPEX is active in the Minami-Nagaoka Gas Field in Niigata Prefecture, one of the largest of
its kind in Japan and operates a natural gas pipeline extending approximately 1,500km andan LNG receiving terminal.
East Japan Station
Sekihara Gas Field(underground storage)
Niigata City

Naoetsu LNG Terminal

Toyama Line

Itoigawa City

Toyama City

Minami-Aga Oil Field

Nagaoka City
Joetsu City

Toyama Prefecture

Shin Oumi Line

Domestic
Natural Gas

Tokyo Line

Gunma
Prefecture

Tomi BS*

Matsumoto City

Shin Tokyo Line
Matsumoto Line
Nagano Prefecture

Karuizawa
Town

Sodeshi LNG Terminal[Shizuoka Gas]

Shizuoka Prefecture
Shizuoka City

Shizuoka Line
Gotemba City

Kofu City

Iruma Line

Sano City

Head Office (Akasaka, Minato-ku)

SaitamaPrefecture
MetropolitanTokyo

Ome City

Minamifuji Line
[INPEX, Shizuoka Gas, Tokyo Gas]

Adachi-ku, Tokyo

Gas field

Naruto Line

Sammu City

Minami-Nagaoka
Gas Field
Ojiya City
Joetsu LineOil and gas fields

Chiba City

Technical Research Center(Kitakarasuyama, Setagaya-ku)

Shinetsu
HonsenNagaoka City
JoetsuShinkansen
Line

Kashiwazaki City

Konosu City

MitsukeCity

Sekihara
Gas Field(underground storage)

Fujioka BS*

Ryomo Line

Regasified LNG
Fuji City

Echigo LineSea of Japan

Honjo City

Kofu Line
Showa
City

Minami-Nagaoka Gas Field

Tochigi Prefecture

Chino City
Tomioka City

Yamanashi
Prefecture

Niigata
Prefecture

Domestic Natural Gas/
Regasified LNG

Nagano City

Second Suruga Trunk Line

Minami-Kuwayama Oil Field

Kashiwazaki City

Naruto Gas Field

Other project
Natural gas pipeline network*BS … Booster station
Major office

Chiba Prefecture
0

100km

In Japan, the natural gas produced from the INPEX-operated Minami-Nagaoka Gas Field (Niigata Prefecture), as well as the
re-gasified LNG and other products received and manufactured at the Naoetsu LNG Terminal (Niigata Prefecture), which commenced operations in December 2013, is transported through a trunk pipeline network of approximately 1,500 kilometers
stretching across the Kanto, Koshinetsu and Hokuriku regions, and sold to customers including city gas companies and largescale plants located along the network. INPEX has experienced steady growth in sales of natural gas volume due to efforts to
expand its supply infrastructure, as well as the highly environmentally friendly attributes of natural gas. Natural gas is expected
to be used for a wide variety of applications, not only as a fuel for thermal enNatural Gas Sales Volume in Japanergy but also as a fuel for onsite power generation and co-generation, as well(100 million Nm/year)
Note: 41.86 MJ per 1 m
as a fuel for natural gas electric power plants and a raw material for chemical
products. INPEX is targeting the early achievement of annual natural gas salesof 2.5 billion m3 and is eyeing an annual supply of 3.0 billion m3 as it uses ex21.2 21.7
20.7
isting infrastructure in tie-ups with other companies to ensure stable supply.
19.1
18.0
17.9
17.6 17.5
17.5
INPEX will remain focused on the sustainable improvement in the value of its
15.1
natural gas business in Japan, which plays a key role in the company’s global
gas value chain. In the Japanese energy market, INPEX faces challenging
business conditions as competition continues to intensify. INPEX is focusing
on developing its business to better address the diversifying needs ofcustomers by implementing energy initiatives conducive to a net zero carbon
society as well as measures to strengthen the company’s resilience. Specifically,in addition to making proposals for the conversion from other fuels to gas,
INPEX is putting great effort into making proposals that utilize a dispersed
2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12(9 months)
power generation system that increase energy efficiency and raises response
capabilities to natural disasters, entering the energy service business andmaking proposals for the introduction of carbon neutral gas.
In addition to steadily promoting efforts related to the electric powersales business in cooperation with city gas providers serving as gas wholesalers, INPEX will proactively promote energy transition efforts. In tandem withthe efforts of INPEX 4U Challenge Lab, which offers solutions to meet the
expectations and needs of local communities, INPEX will also cooperate andcoordinate with other companies, industry organizations and national and local governments in its sustained efforts to contribute to regional revitalizationand the business development of its wholesalers.
At the Naruto Gas Field in Chiba Prefecture, natural gas is being produced from water-soluble gas fields. In addition, after extracting the natural
gas from underground water (brine water), the brine water is used to produce iodine, which is exported to Europe, the United States and elsewhere.
Naoetsu LNG Terminal

64

INPEX CORPORATION Annual Report 2020

Financial andCorporate Information
66	Background Information:
Oil and Gas Accounting
Policies and Practices
68	Management’s Discussion andAnalysis of Financial Condition
and Results of Operations
74	Consolidated Financial
Statements / Notes
94 Independent Auditor’s Report96	Subsidiaries and Affiliates
98 Business Risks
107	Oil and Gas Reserves andProduction Volume
110 Corporate Information

INPEX CORPORATION Annual Report 2020

65

Background Information Oil and Gas Accounting Policies and Practices
INPEX’s Vision and Value Creation

ACCOUNTING METHODS FOR TYPES OF AGREEMENTS
The oil and gas business generates the bulk of consolidated net
sales revenues for the Company and its consolidated subsidiaries(the “Group”). Two types of agreements govern the Group’s oil
and gas operations. One is production sharing contracts (the“PSCs”) and the other is concession agreements. The latter category also includes domestic mining rights, as well as overseas
permits, licenses and lease agreements.

1. Production sharing contracts

Cost recovery and production sharing

The PSCs determine the allocation of oil and gas production
among the host country’s government (or related entity) and thecontractors such as the Group. The allocation formula generally
differs according to the terms of the individual PSC. In the case of
PSC for major projects currently in production, total production
volume is allocated quarterly between two portions.

(2) “Equity portion”: This is any residual production after thecost recovery portion has been allocated. It is allocated between the host country’s government and the contractors
based on agreed percentages.

Production sharing contracts
Costs

Exploration
costs

Development
costs

Production costs(Operating costs)

Assets on Balance Sheet
Project under
exploration phase

Recoverable accounts
under production sharing
Project under development
and production phase

Recoverable accounts
under production sharing
Project under development
and production phase

Acquisition
costs

66

Exploration anddevelopment rights

INPEX CORPORATION Annual Report 2020

2. Concession agreements
Concession agreement is an agreement or authorization (including mining rights awarded in Japan, as well as overseas permits,
licenses and lease agreements) by which a government entity ora national oil company of the country directly awards mining
rights to an oil company. The oil company makes its own investment in exploration and development and has the right of disposition of the oil and gas it extracts. Revenues are returned to thehost country in the form of royalties, taxes, etc., on sales.
Acquisition costs
Costs relating to the acquisition of rights (recorded as intangible
assets under “Mining rights”) for projects governed by concession agreements are treated in the same way as projects governed by the PSCs, as described above.
Exploration costs
The Group’s share of exploration costs is expensed as incurred.
Development costs
The Group’s share of any development costs related to mining facilities is capitalized within tangible fixed assets. The depreciation
Concession agreements

CRITICAL ACCOUNTING POLICIES AND ESTIMATESThe Group’s consolidated financial statements are prepared inconformity with Japanese GAAP. The preparation of these financial statements requires the application of estimates, judgments
and assumptions that affect the reported values of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses for the reporting
period. Actual results may differ from the previously estimated orassumed values.
Accounting estimates pursuant to the preparation of the consolidated financial statements are deemed critical if the degree of
uncertainty associated with such estimates is high, or if rationalchanges to such estimates could exert a material impact on the financial condition or operating results. Critical accounting policies
and estimates relating to the financial presentation are outlined
below.

Impairment loss on fixed assets

The Group groups mining area and other assets as a basic unitthat generates cash inflows independently of other groups of assets. If any indication that an asset may be impaired exists, theGroup shall estimate the future cash flows, and if the recoverable
amount is lower than the carrying amount, the impairment loss isrecognized. Although the Group estimates prices, foreign exchange rates, reserves and others based on reasonable assumptions, any changes in these assumptions could significantly affectfuture operating results.

Allowance for recoverable accounts under
production sharing

Any expenditures made during the exploration, development andproduction phases of projects governed by the PSCs are capitalized within “Recoverable accounts under production sharing” ifthey are recoverable under the relevant PSC. An allowance equal
to exploration costs is recorded within “Allowance for recoverable
accounts under production sharing” to provide for potential losses from unsuccessful exploration. This allowance typically remains
unchanged on the balance sheet until it exceeds the residual balance of exploration costs that previously had been capitalized
within “Recoverable accounts under production sharing” during
the exploration phase. Reflecting the uncertainty associated withoil and gas projects, an allowance is recorded within “Allowance
for recoverable accounts under production sharing” to provide
for probable losses on development activities, as individually estimated for each project. Although assessments and accounting
estimates are made on a reasonable basis, actual operating
results can change depending on the project status.

Unit-of-production method

Statement of Income

Costs

Assets on Balance Sheet

Statement of Income

Provision for allowance forrecoverable accounts under
production sharing

Explorationcosts

All exploration costs are
expensed as incurred

Exploration expenses

Cost of sales(Recovery of recoverable
accounts under production
sharing (capital expenditures))

Development
costs

Tangible fixed assets

Cost of sales(Depreciation andamortization)

Cost of sales(Recovery of recoverable accounts
under production sharing(operating expenditures))

Production costs(Operating costs)

All production costs are
expensed as incurred

Cost of sales(Operating expenses)

Selling, general andadministrative expenses(Depreciation andamortization)

Acquisition
costs

Mining rights

Cost of sales(Depreciation andamortization)

Overseas mining facilities, mining rights and exploration and development rights that are acquired during the development andproduction phase are mainly depreciated or amortized based on
the unit-of-production method. This approach requires the estimation of reserves. Although the Group believes that the assessment of reserves is done in an appropriate manner, any changes
in these estimates could significantly affect future operating
results.

Asset retirement obligations

Asset retirement obligations are recorded by a reasonable estimate of the present value of retirement costs incurred upon termination of the operation and production with respect to oil andgas production facilities, based on the oil and gas contracts orlaws and regulations within the countries in which the Group operates or has working interests. Although the Group believes thatsuch estimates of the present value of retirement costs arereasonable, changes to estimates of the present value of retirement costs which are caused by the factors such as changes to retirement plans, escalating prices of drilling equipment andmaterials and others could significantly affect future operating
results.

Allowance for investments in exploration companies

An allowance is recorded to provide for probable losses on investments made by the Group in entities engaged in oil and gas
activities, as estimated based on the net assets of such entities.
Although the Group believes that the assessments and estimates
relating to such investments are reasonable, changes in actual
production volumes, prices or foreign exchange rates could significantly affect future operating results.

Provision for exploration projects

A provision for exploration projects is provided for future expenditures as of the fiscal year-end of consolidated subsidiaries at the
exploration stage based on a schedule of investments in exploration. Although the Group believes that assessments relating to
the schedule of investments are reasonable, changes to theschedule could significantly affect future operating results.

Provision for loss on businessA provision for loss on business is provided for future potential
loss on crude oil and natural gas development, production andsales business individually estimated for each project. Althoughassessments and accounting estimates are made on a reasonablebasis, actual operating results can change depending on thebusiness status.

Deferred tax assets

Deferred tax assets reflect temporary differences (including net
operating loss carry-forwards) arising mainly from the write-downof exploration expenditures, foreign taxes payable and excess oftax allowable depreciation. Valuation allowances are provided
once it is judged that the non-realization of deferred tax assets
has become the more probable outcome. The effect of foreign
tax credits is taken into account in the calculation of such valuation allowances. The realization of deferred tax assets is principally dependent on the generation of sufficient taxable income,based on the available information. Adjustments to deferred tax
assets could be required if future taxable income was lower than
expected due to market conditions, foreign exchange rate fluctuations or poor operating performance.

Performance and Financial Overview

The calculation of items in the income statement based on theabove PSC-related considerations is as follows:• The Group records as net sales its share of total sales relating
to the oil and gas production that is allocated to contractors
under the PSCs.
• The Group books as cost of sales the portion of “Recoverable
accounts under production sharing” that is recovered throughthe allocation of its share of the “cost recovery portion.”

Non-recoverable costs under the PSCs

Acquisition costs
Costs relating to the acquisition of rights (recorded as intangible
assets under “Exploration and development rights”) for any projects governed by the PSCs that are entirely in the exploration
phase are expensed as incurred and amortized. Expenditures orcosts relating to the acquisition of rights to projects already in thedevelopment or production phase are capitalized within “Exploration and development rights” and amortized based on theunit-of-production method. These amortization costs are recorded within “Depreciation and amortization.” Cost recovery provisions in the PSCs do not generally cover these expenditures.

Production costs
The Group’s share of operating costs that are incurred during the
production phase is recorded within the cost of sales.
Administrative expenses
The Group’s share of administrative expenses is expensed as
incurred.

The Basis of our Value Creation(1) “Cost recovery portion”: This is the oil and gas equivalentof costs incurred at the quarterly period under the PSCs withthe governments of oil-producing countries. The equivalents
are determined based on the current unit prices of crude oiland natural gas and allocated between the contractors alone.
The quantity of oil and gas in the “cost recovery portion” decreases as unit prices increase, whereas that of the “equity
portion” (explained below) rises.
If the actual production for the quarterly period is insufficient to cover the quantity of oil and gas equivalent calculated for the cost recovery portion, the latter is capped at actual
production and any surplus amount is carried forward to thefollowing quarterly period, as stipulated in the PSC.

As noted, in “Cost recovery and production sharing,” these costs
are recovered either as capital or operating expenditures.

of tangible fixed assets that are governed by concession agreements is computed primarily using the unit-of-production method
for mining assets located outside Japan and the straight-line
method for domestic facilities. These depreciation expenses arerecorded within the cost of sales.

Growth Strategies for Value Creation

Production sharing contract is an agreement by which one or several oil and gas development companies serve as contractors that
undertake at their own expense exploration and development
work on behalf of the governments of oil-producing countries or
national oil companies and receive production from the projects
as cost recovery and compensation.

Recoverable costs under the PSCs

Exploration costs
The share of recoverable exploration costs incurred by the Group
under the terms of the relevant PSC is capitalized within “Recoverable accounts under production sharing.”
Development costs
The share of all development costs incurred by the Group that isrecoverable under the terms of the relevant PSC is recorded within “Recoverable accounts under production sharing.”
Production costs
Any operating costs incurred during the production phase thatare recoverable under the relevant PSC are initially recorded within “Recoverable accounts under production sharing.”
Administrative expenses
Any administrative expenses that are recoverable under the relevant PSC are recorded within “Recoverable accounts under production sharing.”

Retirement benefits to employees

Retirement benefit obligation to employees are recognized at thenet present value of future obligations as of the fiscal year-end,taking into account any periodic benefit costs that have arisen
during the period. The calculation of retirement benefit obligations and retirement benefit expenses is based on various
actuarial assumptions, including the discount rate, employee
turnover and retirement rates, remuneration growth rates, and thelong-term expected return on plan assets. Future operating
results could be significantly affected by deviation between thebase assumptions and actual results or the revision of suchassumptions which were to generate actuarial gains or losses.

Goodwill

The excess cost over underlying net assets excluding non-controlling interests as fair value as of their dates of acquisition is accounted for as goodwill and amortized over 20 years on
a straight-line method.

INPEX CORPORATION Annual Report 2020

67

INPEX’s Vision and Value Creation

Management’s Discussion and Analysis of Financial Condition
and Results of Operations
BUSINESS ENVIRONMENTPERFORMANCE OVERVIEW

68

INPEX CORPORATION Annual Report 2020

The decrease of ¥400.1 billion in net sales was mainly derived
from the following factors: a decrease in sales volume pushingsales down of ¥17.4 billion, a decrease in unit sales price pushingsales down of ¥365.5 billion, the appreciation of the Japanese yen
against the U.S. dollar pushing sales down of ¥13.4 billion, anda decrease in net sales excluding crude oil and natural gas of ¥3.6
billion.
Cost of sales
Cost of sales for the year ended December 31, 2020, decreasedby ¥71.2 billion, or 13.9%, to ¥439.8 billion from ¥511.1 billion forthe corresponding period of the previous year.
Exploration expenses
Exploration expenses for the year ended December 31, 2020, decreased by ¥14.5 billion to ¥9.0 billion from ¥23.5 billion for thecorresponding period of the previous year. This was mainly due toa decrease in exploration activities in the Middle East & Africa region and the America region.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended
December 31, 2020, decreased by ¥3.3 billion, or 5.4%, to ¥58.8
billion from ¥62.1 billion for the corresponding period of the previous year.
Depreciation and amortization
Depreciation and amortization for the year ended December 31,
2020, decreased by ¥0.1 billion, or 1.2%, to ¥14.8 billion from

Net sales
Crude oil
Natural gas
Other
Cost of sales
Gross profit
Exploration expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating income
Other income
Interest income
Dividend income
Equity in earnings of affiliates
Guarantee commission received
Foreign exchange gain
Other
Other expenses
Interest expense
Loss on valuation of investment securities
Equity in losses of affiliates
Provision for allowance for recoverable accounts
under production sharing
Provision for exploration projects
Foreign exchange loss
Impairment loss
Other
Income before income taxes
Income taxes
Net income (loss)
Net income (loss) attributable to non-controlling interests
Net income (loss) attributable to owners of parent

2020/12

ChangeRatio¥1,171,203
871,557
281,044
18,601
511,150
660,052
23,58862,19015,020559,254
63,351
3,173
7,585
36,673300
810
14,807
44,201
27,762
3,497—¥ 771,046
505,517
250,592
14,937439,852
331,194
9,074
58,815
14,832
248,471
63,80333,480
6,733
—
6,650
—
16,938244,880
19,092
6,556
12,999¥(400,156)(366,039)(30,452)(3,664)(71,297)(328,858)(14,514)(3,374)(187)(310,783)
452
30,307(851)(36,673)
6,349
(810)
2,130
200,678(8,670)
3,058
12,999(34.2)%(42.0)(10.8)(19.7)(13.9)(49.8)(61.5)(5.4)(1.2)(55.6)
0.7—(11.2)(100.0)—(100.0)14.4—(31.2)
87.4
—

1,701

2,566

864

210
—
6,283
4,745
578,404
419,248
159,155(8,161)¥ 167,316

2
8,209
189,940
5,514
67,394
171,200(103,806)
7,893¥(111,699)

(207)
8,209
183,657768(511,009)(248,048)(262,961)
16,054¥(279,016)¥15.0 billion for the corresponding period of the previous year.
The Group records depreciation expenses for production facilities
that are covered by concession agreements as cost of sales. In
addition, under its accounting treatment of the PSCs, the Group
records capital expenditures as “Recoverable accounts under
production sharing” instead of capitalizing these costs within tangible fixed assets and depreciating them. Costs that are recovered in any given year based on the terms of the PSCs areincluded in the cost of sales.
Operating income
As a result of the above, operating income for the year ended
December 31, 2020, decreased by ¥310.7 billion, or 55.6%, to¥248.4 billion from ¥559.2 billion for the corresponding period of
the previous year.
Other income
Other income for the year ended December 31, 2020, increasedby ¥0.4 billion, or 0.7%, to ¥63.8 billion from ¥63.3 billion for thecorresponding period of the previous year.
Other expenses
Other expenses for the year ended December 31, 2020, increasedby ¥200.6 billion to ¥244.8 billion from ¥44.2 billion for the corresponding period of the previous year. This was mainly due to anincrease in impairment loss.

50.8(99.0)——
16.2(88.3)(59.2)———%

Income taxes
Total current income taxes and deferred income taxes for the year
ended December 31, 2020, decreased by ¥248.0 billion, or 59.2%,
to ¥171.2 billion from ¥419.2 billion for the corresponding periodof the previous year. The Group pays the majority of its taxes outside Japan. In addition to the high corporate tax rates imposed ina number of regions, the Group is generally unable to deduct expenses incurred in Japan for such taxes. Despite the positive effects attributable to the application of the foreign tax credit
system, this situation resulted in a high effective income tax rate.

Performance and Financial Overview

Net sales
Consolidated net sales for the year ended December 31, 2020
decreased by ¥400.1 billion, or 34.2%, to ¥771.0 billion from
¥1,171.2 billion for the corresponding period of the previous year
due to decreases in sales price and sales volume of crude oil.
Compared with the corresponding period of the previous year,
net sales of crude oil decreased by ¥366.0 billion, or 42.0%, to¥505.5 billion from ¥871.5 billion, and net sales of natural gas decreased by ¥30.4 billion, or 10.8%, to ¥250.5 billion from ¥281.0
billion.
The sales volume of crude oil decreased by 5,033 thousandbarrels, or 4.1%, to 117,282 thousand barrels compared with thecorresponding period of the previous year. The sales volume ofnatural gas increased by 47 billion cubic feet (Bcf), or 11.3%, to467 Bcf compared with the corresponding period of the previous
year. Of this, the sales volume of overseas natural gas increased
by 50 Bcf, or 14.7%, to 390 Bcf compared with the corresponding
period of the previous year. The sales volume of domestic natural
gas decreased by 71 million m3, or 3.3%, to 2,074 million m3(equivalent to 77 Bcf) compared with the corresponding period of
the previous year. The average sales price of overseas crude oil
was US$40.31 per barrel, a decrease of US$25.01, or 38.3%, compared with the corresponding period of the previous year. The
average sales price of overseas natural gas was US$3.61 per
thousand cubic feet (Mcf), a decrease of US$0.72, or 16.6%, compared with the corresponding period of the previous year. The
average sales price of domestic natural gas was ¥46.93 per m3,
a decrease of ¥7.69 per m 3 , or 14.1%, compared with thecorresponding period of the previous fiscal year.

(Millions of yen, %)Corresponding
Period of the Previous
Year

The Basis of our Value Creation

oil production due to the downturn in oil prices. Brent crude rose
to US$45.86 by late August. Crude oil prices weakened throughmid-November to around US$40, as economic activity was restricted in some regions and cities in Europe and the U.S. with therenewed spread of COVID-19. Prices entered an upward trend
from late November however, against the backdrop of an anticipated extension by OPEC+ of the current level of production cuts
beyond January 2021, and the emergence of highly effective
COVID-19 vaccines under development by pharmaceutical companies. Brent crude ended the year at US$51.80 per barrel. In Japan, prices of crude oil and petroleum products correlated withthe fluctuations in international crude oil prices. The Group’s average crude oil sales price for the year ended December 31, 2020reflected this shift and fell to US$40.31 per barrel, down US$25.01
from the corresponding period of the previous year.
The foreign exchange market, another important factor that
affects the business of the Group, began to trade at ¥108 level
against the U.S. dollar. In February, Japanese Yen climbed to ¥112
level against the U.S. dollar due to positive outcomes of the US
economic statistics, but afterwards the foreign exchange market
continued volatile fluctuations due to the panic of the financial
market after the expansion of COVID-19. In June, the yen
dropped to ¥109 level against the U.S. dollar after the number of
new patients of COVID-19 started to decrease globally, and thenthe financial market got back stability. However, the yen appreciated again against the U.S. dollar through end of the year after
Federal Reserve Board indicated the guidance that they extend
the monetary easing policy. Finally, TTM as of December 31, 2020,
closed at ¥103.52 against the U.S. dollar which turned out to be¥6.03 higher than that on December 31, 2019. Reflecting thesesituations, the average exchange rate applied for sales transactions for the Group for the year ended December 31, 2020 was¥106.85 against the U.S. dollar, which is ¥2.20 higher than that of
the corresponding period of the previous year.

Growth Strategies for Value Creation

The Group unified its fiscal year-ends to December 31, effectivefrom the year ended December 31, 2019. Accordingly, the Company and its domestic subsidiaries whose former fiscal years ended on March 31 changed their year-ends to December 31.
Increases or decreases displayed hereinafter are based on thecomparison to the corresponding period of the previous year,
which is comprised of the twelve-month results (January 1, 2019–
December 31, 2019).
During the year ended December 31, 2020, the global economy experienced a slowdown in economic activity in countries
around the world impacted by the spread of the novel coronavirus (COVID-19), and business conditions rapidly deteriorated. The
Japanese economy also experienced a rapid contraction in corporate earnings and consumer spending as well as a deterioration in employment following the declaration of a state of
emergency in April. At present, although exports, production andconsumption are showing signs of recovery thanks to a phased
increase in socioeconomic activity, the outlook for the future remains uncertain, due to concerns of a re-spread of COVID-19.
Of the international crude oil price indices, which significantly
influence the financial performance of the Group, Brent crude (ona near-term closing price basis), considered a benchmark index
for crude oil, started at US$66.25 per barrel on January 1, 2020.
Crude oil prices trended downward from late January 2020, as
awareness grew on the negative impact of the emerging spreadof COVID-19, primarily in China, on the global economy. Then on
March 6, a breakdown in talks between OPEC and non-OPEC
countries (OPEC+) to jointly extend production cuts beyond April
drove crude oil prices into freefall. Oil prices fell to less than
US$25 per barrel at the end of March. Prices were weighed down
further as the spread of COVID-19 led to a slowdown in economic
activity around the world, and Brent crude sank to US$19.33 by
the end of April. Economic activity gradually resumed in China
and elsewhere from the middle of the year, and the balance of
supply and demand for crude oil improved, against the backdropof joint production cuts by OPEC+ and the U.S. reducing crude

Net income (loss) attributable to non-controlling interests
Net income attributable to non-controlling interests for the year
ended December 31, 2020, was ¥7.8 billion. Meanwhile, net loss
attributable to non-controlling interests for the corresponding
period of the previous year, was ¥8.1 billion.
Net income (loss) attributable to owners of parent
As a result of the above, net loss attributable to owners of parent
for the year ended December 31, 2020, was ¥111.6 billion. Meanwhile, net income attributable to owners of parent for the corresponding period of the previous year, was ¥167.3 billion.

INPEX CORPORATION Annual Report 2020

69

INPEX’s Vision and Value Creation

FINANCIAL POSITION
liabilities increased by ¥142.5 billion, or 12.4%, to ¥1,293.8 billion
from ¥1,151.3 billion as of December 31, 2019.
Net assets decreased by ¥295.8 billion, or 9.0%, to ¥3,001.3
billion from ¥3,297.1 billion as of December 31, 2019. Total shareholders’ equity decreased by ¥155.5 billion, or 5.7%, to ¥2,567.2
billion from ¥2,722.7 billion as of December 31, 2019. Total accumulated other comprehensive income decreased by ¥148.7 billion, or 46.8%, to ¥169.2 billion from ¥317.9 billion as of December
31, 2019, and non-controlling interests increased by ¥8.3 billion,
or 3.3%, to ¥264.7 billion from ¥256.4 billion as of December 31,
2019.

Investments in upstream oil and gas projects• Discrepancies exist between the standards stipulated in U.S.

FASB Accounting Standards Codification Topic 932, “Extractive
Industries—Oil and Gas (Topic 932),” and both the Group’s
definitions of exploration and development expenditures andthe standards used in preparing the following tables. The following is a partial list of the discrepancies between the Group’s
accounting policies and Topic 932.
– Group expenditures relating to the PSC-governed joint ventures where the Group is not the operator are disclosed ona cash basis rather than an accrual basis as required by Topic 932.
– The tables below have been prepared based on the cost definitions used by operators in their reporting, which may not be
consistent with Topic 932.
– Topic 932 requires that administrative costs not directly related
to exploration and development activities be excluded from
exploration and development expenditures, whereas such administrative costs are not necessarily excluded from those expenditures under the Group’s accounting policies.

The table below shows the Group’s exploration and development costs and other expenditures (excluding capitalized interest costs and asset retirement costs corresponding to asset retirement obligations capitalized under fixed assets) by segment for the years ended December 31, 2019 and 2020.
(Millions of yen)Eurasia(Europe & NIS)

Middle East &AfricaAmericasTotal¥  3,639
62,130¥  (485)
19,025¥ 8,499
49,733¥ 5,823
39,837¥ 18,812
171,6172,223

65,77018,54058,23345,661

190,430

—
—

—
2,136

13
1,526

—
1,910

—
138

13
5,711

—
2,510
¥4,7342,136
50,349¥118,256

1,539—¥20,080

1,910—¥60,144138—¥45,799

5,725
52,859¥249,014

INPEX CORPORATION and Consolidated Subsidiaries
Exploration¥1,334Development
888
Subtotal

Subtotal
Other capital expenditures*
Total

Middle East &AfricaAmericasTotal¥ 3,961
62,262¥ (589)24,617¥ 5,682
52,386¥   793
13,532¥ 10,777
154,860

2,992

66,22324,02758,06914,325

165,638

—
—

—
1,470

26
1,653

—
917

—
—

26
4,042

—
2,706
¥5,6981,470
12,546¥80,240

1,680—¥25,707917—¥58,987——¥14,325

4,069
15,252¥184,959

INPEX CORPORATION and Consolidated Subsidiaries
Exploration¥ 930
Development
2,061
Subtotal
Equity-method affiliates
Exploration
Development* Other capital expenditures include the construction costs of domestic gas infrastructure, the Group’s share of investment in the Ichthys downstream entity (Ichthys LNG Pty Ltd, an equity-method affiliate) and others.

Total investments for the year ended December 31, 2020, decreased by ¥64.0 billion, or 25.7%, to ¥184.9 billion (including ¥4.0 billion for exploration and development by equity-method affiliates) from ¥249.0 billion for the year ended December 31, 2019. This was mainly due toa decrease in expenditures in the Asia & Oceania region and the America region.
The table below shows the Group’s operating expenses by segment for the years ended December 31, 2019 and 2020.
(Millions of yen, %)2019/122020/12INPEX CORPORATION and Consolidated Subsidiaries
Japan¥ 9,045

Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas30,842
12,54237,367
1,576

9.9%
33.8
13.7
40.9
1.7

¥10,93144,393
14,28541,744
2,709

9.6%
38.9
12.5
36.6
2.4

91,374100.0

114,065

100.0

342
283
2,468
1,924

6.8
5.7
49.2
38.3

2,972
460
2,548
—

49.7
7.7
42.6
—

5,018
¥96,393

100.0
—%

5,981
¥120,046

100.0—%

Subtotal
Equity-method affiliates
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Subtotal
Total

Performance and Financial Overview

Asia & Oceania

Japan

Asia & Oceania

Japan

The Basis of our Value Creation

Continuous exploration for new reserves of crude oil and natural
gas is essential for stable earnings of the Group. The informationin this section on upstream oil and gas investments is based on
the data reported by project operators relating to exploration expenditures, development expenditures and operating expenses.
The Group’s expenditure categories are defined as follows:•	Exploration expenditures include the costs of exploratory drilling and any geological or geophysical studies. The costs of local personnel and office operations and related administrative
expenses are also included in this category if a project (or contract area) is in the exploration phase.
• Development expenditures include the costs of development
drilling, any production facilities and acquisition of participating interests.
• Operating expenses include the costs of well operations, maintenance and the supervision of production activities. This category also includes the administrative expenses for the project(or contract area) if it contains a field in active production.

Equity-method affiliates
Exploration
Development

Year ended December 31, 2020

Subtotal
Other capital expenditures*
Total

INVESTMENT AND FUNDING

Year ended December 31, 2019

(Millions of yen)Eurasia(Europe & NIS)

Growth Strategies for Value Creation

Total assets as of December 31, 2020, decreased by ¥215.4 billion,
or 4.4%, to ¥4,634.5 billion from ¥4,849.9 billion as of December
31, 2019. Current assets decreased by ¥32.7 billion, or 7.8%, to¥387.0 billion from ¥419.8 billion due to a decrease in accounts
receivable—trade and others. Fixed assets decreased by ¥182.7
billion, or 4.1%, to ¥4,247.4 billion from ¥4,430.1 billion as of December 31, 2019, due to decreases in tangible fixed assets andintangible fixed assets and others.
Meanwhile, total liabilities increased by ¥80.3 billion, or 5.2%,
to ¥1,633.1 billion from ¥1,552.8 billion as of December 31, 2019.
Current liabilities decreased by ¥62.1 billion, or 15.5%, to ¥339.2
billion from ¥401.4 billion as of December 31, 2019. Long-term* Other capital expenditures include the construction costs of domestic gas infrastructure, the Group’s share of investment in the Ichthys downstream entity (Ichthys LNG Pty Ltd, an equity-method affiliate) and others.

70

INPEX CORPORATION Annual Report 2020

INPEX CORPORATION Annual Report 202071Cash flows

Cash flows for the years ended December 31, 2019 and 2020, are summarized as follows:
Due to the change of the year-end, the year ended December 31, 2019 was a nine-month transition period. Therefore, the change from theprevious year is not displayed.

(Millions of yen)

Balance at beginning of the year
Add: Exploration costs
Development costs
Operating expenses
Other
Less: Cost recovery—capital expenditures
Cost recovery—operating expenditures
Other¥568,059
3,203
27,054
13,078
7,781(32,261)(12,255)(6,283)¥568,377
3,584
28,865
17,1886,184(34,691)(13,965)—

Balance at end of the year
Allowance for recoverable accounts under production sharing at end of the year

568,377¥ (66,897)

575,544¥ (69,441)¥ 292,915(417,189)
126,747¥ 172,405

Net cash provided by (used in) financing activities
Net cash provided by financing activities is ¥126.7 billion mainly
due to proceeds from long-term debt.

Net cash provided by (used in) investing activities
Net cash used in investing activities is ¥417.1 billion mainly due topayments for purchases of long-term loans receivable and tangible fixed assets.

from export credit agencies and commercial banks for project financing and others. In the year ended December 31, 2020, in addition to development activities, the Group borrowed from
Development Bank of Japan Inc. and Japan Bank for International
Cooperation in order to strengthen the Group’s financial foundation under the environment with low oil prices, and also tried toreduce financial costs by the refinance of Ichthys LNG Project
Finance.
The Group’s basic liquidity policy is to maintain sufficient cashon hand to provide for steep falls in oil and gas prices. In addition, the Group has concluded commitment line contracts withmultiple financial institutions to secure the line of credit.
As of December 31, 2020, total of short-term borrowings andlong-term debt was ¥12.3 billion, and total of cash and cash
equivalents was ¥1.7 billion.

Performance and Financial Overview

INPEX CORPORATION Annual Report 2020

Net cash provided by (used in) operating activities
Net cash provided by operating activities is ¥292.9 billion mainly
due to impairment loss and depreciation and amortization (noncash), despite income taxes paid.

2020/12¥ 274,730(288,740)(48,615)¥ 173,774

The Basis of our Value Creation

Funding sources and liquidity

Operating expenses for the year ended December 31, 2020,was ¥17.1 billion. This was mainly due to operating expenses inthe Eurasia region.
Cost recovery for the year ended December 31, 2020, was¥48.6 billion. This was mainly due to cost recovery in the Eurasia
region.
The allowance for recoverable accounts under production
sharing as of December 31, 2020, increased compared with December 31, 2019. This was mainly due to additional provision forallowance in connection with exploration expenditures.

Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Cash and cash equivalents at end of the period

2019/12Growth Strategies for Value Creation

2020/12

Oil and gas exploration and development projects, as well as theconstruction of gas infrastructure, require significant funding. The
Group relies on cash flow derived from internal reserves, together
with external sources, to procure funds. The Group’s basic policy
is to utilize internal cash flow and external equity financing to fundexploration projects and to utilize internal cash flow and externalloans to fund development projects and the construction of gas
infrastructure. The Group currently receives loans from the Japan
Bank for International Cooperation, Japanese commercial banks
and others. The Japan Oil, Gas and Metals National Corporation(JOGMEC) guarantee system covers these loans. In addition, theDevelopment Bank of Japan and various Japanese commercial
banks provide loans for the construction of domestic gas
infrastructure.
The Ichthys downstream entity (Ichthys LNG Pty Ltd, an equity-method affiliate), as the borrower, has utilized external loans

72(Millions of yen)

2019/12

The amount posted as “Cost recovery—operating expenditures”
in recoverable accounts under production sharing is greater thanthat posted as operating expenses. Along with operating expenses, this is because a portion of the exploration and development
costs, which are incurred and recoverable within the year, is included in the “Cost recovery—operating expenditures” account.
Exploration costs for the year ended December 31, 2020, was¥3.5 billion. This was mainly due to exploration expenditures in
the Middle East & Africa region.
Development costs for the year ended December 31, 2020,was ¥28.8 billion. This was mainly due to development expenditures in the Asia & Oceania region and the Eurasia region.

INPEX’s Vision and Value Creation

Analysis of recoverable accounts under production sharing

For upstream projects governed by the PSCs, the Group’s share of costs arising during the exploration, development and production
phases is capitalized under “Recoverable accounts under production sharing.” The following table shows the changes in the balance of“Recoverable accounts under production sharing” during the years ended December 31, 2019 and 2020.

INPEX CORPORATION Annual Report 202073

Consolidated Balance Sheet
INPEX’s Vision and Value Creation

INPEX CORPORATION and Consolidated Subsidiaries
December 31, 2020

Thousands of
U.S. dollars (Note 3)

Millions of yen

ASSETS

2019/122020/122020/12LIABILITIES AND NET ASSETS
Accounts payable—trade¥ 172,405$ 1,665,426

23

10,573102,134

Accounts receivable—trade (Notes 4 and 6)

148,765

83,810809,602

Inventories (Note 6)

38,98734,299331,327

Accounts receivable—other (Note 4)

47,05740,748393,624

Other (Note 6)

24,962

57,481

555,264

Accrued bonuses to officers

Less allowance for doubtful accounts(13,768)(12,225)(118,093)

419,802387,0933,739,306

Total current assets

Short-term borrowings and current portion of long-term debt
(Notes 4, 6 and 12)

2020/12¥   21,798¥   15,090$   145,768

166,831

175,133

1,691,779

Income taxes payable (Note 7)

43,19012,676

122,449

Accounts payable—other

97,24170,478680,815

Accrued bonuses

1,334

1,415

13,668

108

54

521

Provision for loss on business

8,635

9,351

90,330

Provision for exploration projects

11,8089,496

91,731

Asset retirement obligations (Note 16)

780

1,475

14,248

Other

Tangible fixed assets
Buildings and structures

2020/12401,995

402,332

3,886,514

49,754

44,116426,159

401,483

339,288

3,277,511

Long-term debt (Notes 4, 6, 11 and 12)

950,948

1,059,713

10,236,794

Deferred tax liabilities (Note 7)

44,30532,594

314,857

Provision for stocks payment

42

71

685

Total current liabilities

609,007651,938

6,297,700

1,636,502

1,679,940

16,228,168

Land (Note 6)

18,596

18,591

179,588

Construction in progress (Note 6)

552,866

385,405

3,723,000

Other

29,54050,688489,644

Accrued special repair and maintenance

537

577

5,573

3,248,507

3,188,897

30,804,646

Liability for retirement benefits (Note 15)

8,011

8,158

78,806(973,135)(1,119,114)(10,810,606)

Asset retirement obligations (Note 16)

136,101

172,147

1,662,934

2,275,372

2,069,783

19,994,039

Wells (Note 6)
Machinery, equipment and vehicles (Note 6)

Total tangible fixed assets
Intangible assets
Goodwill (Note 17)

42,20635,445342,397

Exploration and development rights

155,108

156,787

1,514,557

Mining rights

333,246

245,016

2,366,846

4,770

4,587

44,310535,330

441,837

4,268,131

Other
Total intangible assets

Long-term liabilities

11,388

20,627

199,256

Total long-term liabilities

Other

1,151,334

1,293,890

12,498,937

Total liabilities

1,552,818

1,633,178

15,776,448

290,809290,8092,809,205

The Basis of our Value Creation

Less accumulated depreciation and amortization

Growth Strategies for Value Creation¥ 173,774

Time deposits

2019/12Current liabilities

Current assets
Cash and cash equivalents (Note 6)

Thousands of
U.S. dollars (Note 3)

Millions of yen

Net assets (Note 9)
Common stock
Authorized 2019/12 — 3,600,000,001 shares
2020/12 — 3,600,000,001 shares
Issued2019/12 — 1,462,323,601 shares

Recoverable accounts under production sharing
Less allowance for recoverable accounts under production sharing

Capital surplus
568,377

575,5445,559,737

Retained earnings
Less: Treasury stock(66,897)(69,441)(670,797)

501,479

506,1024,888,929

Investment securities (Notes 4, 5 and 6)

378,527

297,867

2,877,386

Long-term loans receivable (Note 6)

718,976

911,424

8,804,327

Deferred tax assets (Note 7)

7,471

10,23798,889Other (Note 6)

16,247

13,231

127,811

(818)

(600)

(5,795)(2,395)(2,460)(23,763)

Total investments and other assets

1,619,489

1,735,804

16,767,812

Total fixed assets

4,430,192

4,247,424

41,029,984

Total assets¥4,849,995¥4,634,518$44,769,300

Less allowance for doubtful accounts
Less allowance for investments in exploration

2019/12 — 2,121,916 shares
2020/12 — 2,119,096 shares

Total shareholders’ equity
Unrealized holding gain (loss) on securities

674,374

674,374

6,514,431

1,763,034

1,607,524

15,528,632(5,432)(5,428)(52,434)

2,722,786

2,567,279

24,799,835

5,570

2,091

20,198

Unrealized gain (loss) from hedging instruments(18,128)(54,054)(522,159)

Translation adjustments

330,546

221,224

2,137,017

Total accumulated other comprehensive income

317,988

169,261

1,635,056

Non-controlling interests

256,400

264,798

2,557,940

3,297,176

3,001,339

28,992,841¥4,849,995¥4,634,518$44,769,300

Total net assets

Performance and Financial Overview

2020/12 — 1,462,323,601 shares
Investments and other assets

Contingent liabilities (Note 19)
Total liabilities and net assets

See accompanying notes to consolidated financial statements.

74

INPEX CORPORATION Annual Report 2020

INPEX CORPORATION Annual Report 202075

Consolidated Statement of Changes in Net Assets
INPEX’s Vision and Value Creation

Consolidated Statement of Income andConsolidated Statement of Comprehensive Income

INPEX CORPORATION and Consolidated Subsidiaries

Consolidated Statement of Income
INPEX CORPORATION and Consolidated Subsidiaries
For the year ended December 31, 2020

Millions of yen
Shareholders’ equity

Thousands of
U.S. dollars (Note 3)

Millions of yen

2019/122020/122020/12¥1,000,005
424,702575,303
15,42649,783
11,451
498,641¥ 771,046
439,852
331,194
9,074
58,815
14,832
248,471$ 7,448,280
4,248,956
3,199,323
87,654568,151
143,276
2,400,222

33,480
6,733
—
—
6,650
—
16,93863,803

323,41565,040——64,238—
163,620
616,335

21,856
3,497
—
3,115
—
—
796
3,851
33,117510,292

19,092
6,556
12,999
2,566
2
8,209
189,940
5,514
244,880
67,394

184,428
63,330125,569
24,787
19
79,298
1,834,814
53,2652,365,533
651,023

361,180
24,545
385,725
124,566
1,015¥ 123,550

184,127(12,926)
171,200(103,806)
7,893¥(111,699)

1,778,661(124,864)
1,653,786(1,002,762)
76,246$(1,079,008)

Balance as of April 1, 2019
Change in ownership interest of parent arising fromtransactions with non-controlling shareholders
Cash dividends paid
Net income attributable to owners of parent
Disposal of treasury stock
Net changes in items other than those inshareholders’ equity
Total changes during the period
Balance as of December 31, 2019

Capital surplus

Retained earnings¥290,809¥673,574¥1,678,914

2(39,429)
123,5502

2¥(5,432)

84,922¥2,722,786

Non-controllinginterests

Total net assets¥251,103¥3,257,584

800(39,429)
123,550—¥290,809

800¥674,374

84,120¥1,763,034

Millions of yen
Accumulated other comprehensive income
Total accumulated
Unrealized holding
Unrealized gain
Translation
other comprehensive
gain (loss) on(loss) from hedging
adjustments
incomesecurities
instruments¥2,832¥ 6,359¥359,426¥368,617

800(39,429)
123,550
2
2,738(24,487)(28,879)(50,628)5,297(45,330)

2,738¥5,570(24,487)¥(18,128)(28,879)¥330,546(50,628)¥317,988

5,297¥256,400

39,592¥3,297,176

Millions of yen
Shareholders’ equity
For the year ended December 31, 2020
Balance as of January 1, 2020
Change in ownership interest of parent arising fromtransactions with non-controlling shareholders
Cash dividends paid
Net loss attributable to owners of parent
Disposal of treasury stock
Net changes in items other than those inshareholders’ equity
Total changes during the period
Balance as of December 31, 2020

For the year ended December 31, 2020

Capital surplus

Retained earnings¥290,809¥674,374¥1,763,034¥(5,432)

Total shareholders’equity¥2,722,786

3(43,810)(111,699)
3

3¥(5,428)(155,507)¥2,567,279

Non-controllinginterests

Total net assets¥256,400¥3,297,176

Treasury stock—(43,810)(111,699)—¥290,809—¥674,374(155,510)¥1,607,524

Millions of yen
Accumulated other comprehensive income
Total accumulated
Unrealized holding
Unrealized gain
Translation
other comprehensive
gain (loss) on(loss) from hedging
adjustments
incomesecurities
instruments¥5,570¥(18,128)¥330,546¥317,988—(43,810)(111,699)
3(3,479)(35,926)(109,322)(148,727)

8,397(140,329)(3,479)¥2,091(35,926)¥(54,054)(109,322)¥221,224(148,727)¥169,261

8,397¥264,798(295,836)¥3,001,339

Performance and Financial Overview

Balance as of January 1, 2020
Change in ownership interest of parent arising fromtransactions with non-controlling shareholders
Cash dividends paid
Net loss attributable to owners of parent
Disposal of treasury stock
Net changes in items other than those inshareholders’ equity
Total changes during the period
Balance as of December 31, 2020

Common stockThousands of U.S. dollars (Note 3)
Shareholders’ equity

INPEX CORPORATION and Consolidated Subsidiaries
For the year ended December 31, 2020
Thousands of
U.S. dollars (Note 3)

Millions of yen

See accompanying notes to consolidated financial statements.

Total shareholders’equity¥2,637,864

800

Consolidated Statement of Comprehensive Income

Net income (loss)
Other comprehensive income
Unrealized holding gain (loss) on securities
Unrealized gain (loss) from hedging instruments
Translation adjustments
Share of other comprehensive income of affiliates accounted
for by the equity-method
Total other comprehensive income (Note 8)
Comprehensive income
Total comprehensive income attributable to:
Owners of parent
Non-controlling interests¥(5,434)

Treasury stock

The Basis of our Value Creation

2,422
3,240
4,981
23,313
235
2,481
8,094
44,768For the year ended December 31, 2019

Common stock

Growth Strategies for Value Creation

Net sales
Cost of sales (Note 13)
Gross profit
Exploration expenses
Selling, general and administrative expenses (Notes 13, 15 and 17)
Depreciation and amortization
Operating income
Other income
Interest income
Dividend income
Gain on sales of investment securities
Equity in earnings of affiliates
Guarantee commission received
Foreign exchange gain
Other
Total other income
Other expenses
Interest expense
Loss on valuation of investment securities
Equity in losses of affiliates
Provision for allowance for recoverable accounts under production sharing
Provision for exploration projects
Foreign exchange loss
Impairment loss (Note 14)
Other
Total other expenses
Income before income taxes
Income taxes (Note 7)
Current
Deferred
Total income taxes
Net income (loss)
Net income attributable to non-controlling interests
Net income (loss) attributable to owners of parent

For the year ended December 31, 2019
Balance as of April 1, 2019
Change in ownership interest of parent arising fromtransactions with non-controlling shareholders
Cash dividends paid
Net income attributable to owners of parent
Disposal of treasury stock
Net changes in items other than those inshareholders’ equity
Total changes during the period
Balance as of December 31, 20192019/122020/122020/12¥124,566¥(103,806)$(1,002,762)

2,685
(192)
(29,557)(3,483)281(109,917)(33,645)
2,714(1,061,794)(24,608)(39,904)(385,471)(51,674)
72,892(153,024)(256,830)(1,478,207)(2,480,969)

72,922¥(30)(260,426)¥3,596(2,515,707)$34,737

For the year ended December 31, 2020
Balance as of January 1, 2020
Change in ownership interest of parent arising fromtransactions with non-controlling shareholders
Cash dividends paid
Net loss attributable to owners of parent
Disposal of treasury stock
Net changes in items other than those inshareholders’ equity
Total changes during the period
Balance as of December 31, 2020

For the year ended December 31, 2020
Balance as of January 1, 2020
Change in ownership interest of parent arising fromtransactions with non-controlling shareholders
Cash dividends paid
Net loss attributable to owners of parent
Disposal of treasury stock
Net changes in items other than those inshareholders’ equity
Total changes during the period
Balance as of December 31, 2020

Common stock

Capital surplus

Retained earnings$2,809,205$6,514,431$17,030,853$(52,472)

Total shareholders’equity$26,302,028

28(423,203)(1,079,008)
28

28$(52,434)(1,502,192)$24,799,835

Treasury stock—(423,203)(1,079,008)—$2,809,205—$6,514,431(1,502,221)$15,528,632

Thousands of U.S. dollars (Note 3)
Accumulated other comprehensive income
Unrealized gain
Total accumulated
Unrealized holding
Translation(loss) from hedging
other comprehensive
gain (loss) on
adjustments
instruments
incomesecurities$53,806$(175,115)$3,193,064$3,071,754

Non-controllinginterests

Total net assets$2,476,816$31,850,618—(423,203)(1,079,008)
28(33,607)(347,044)(1,056,047)(1,436,698)

81,114(1,355,573)(33,607)$20,198(347,044)$(522,159)(1,056,047)$2,137,017(1,436,698)$1,635,056

81,114$2,557,940(2,857,766)$28,992,841

See accompanying notes to consolidated financial statements.

76

INPEX CORPORATION Annual Report 2020

INPEX CORPORATION Annual Report 202077

NotesINPEX CORPORATION and Consolidated Subsidiaries
For the year ended December 31, 2020

INPEX CORPORATION and Consolidated Subsidiaries

Thousands of
U.S. dollars (Note 3)

Millions of yen

INPEX CORPORATION Annual Report 2020

¥ 510,292
135,629
796
5,022
3,163
4,573
(446)
1,780
(5,662)
21,856(747)(23,313)(4,981)
3,497¥ 67,394
174,098
189,940
6,760
2,544(1,907)(777)
186(40,214)
19,092
4,809
12,999—6,556$  651,023
1,681,781
1,834,814
65,301
24,574(18,421)(7,505)
1,796(388,465)
184,428
46,454
125,569—
63,33032,261

34,691

335,113(5,471)(7,101)(68,595)(57,433)(760)(10,393)
22,796(14,946)(14,269)
16,153
619,398
10,361(17,601)(337,428)
274,730

61,756
6,507(6,612)
9,972(21,458)
(148)
1,852
520,941
9,568(19,494)(218,099)
292,915596,561
62,857(63,871)
96,329(207,283)(1,429)17,8905,032,273
92,426(188,311)(2,106,829)
2,829,549(23)
22(109,737)249(1,221)(1,032)
3,136(64,283)
53,408(129,745)
404(3,380)
(429)
1,318

(620,971)
515,919(1,253,332)
3,902(32,650)(4,144)
12,731(36,679)(35,039)(338,475)

412(113,751)
5,299—(35,870)457(288,740)

543(84,829)
40,108(201,769)(5,760)12,266(417,189)

5,245(819,445)
387,442(1,949,082)(55,641)
118,489(4,030,032)—
79,037(89,842)
10,173(39,432)(6,725)(1,827)(48,615)(3,253)(65,878)
239,652¥ 173,774

92,107
238,564(158,903)
8,900(43,796)(4,098)(6,026)
126,747(3,842)(1,368)
173,774¥ 172,405

889,750
2,304,520(1,534,998)
85,973(423,068)(39,586)(58,210)1,224,372(37,113)(13,214)
1,678,651$ 1,665,426

The Company is primarily engaged in the research, exploration,
development and production of crude oil and natural gas.
The Company and its domestic subsidiaries maintain their accounting records and prepare their financial statements in accordance with accounting principles generally accepted in Japan.
The accompanying consolidated financial statements havebeen prepared by using the accounts of foreign consolidated
subsidiaries prepared in accordance with International Financial
Reporting Standards, or IFRS or the accounting principles generally accepted in the United States, or U.S. GAAP as adjusted forcertain items.

The accompanying consolidated financial statements havebeen prepared in accordance with accounting principles generally accepted in Japan, which may differ in certain material respects
from IFRS or U.S. GAAP, and are compiled from the consolidated
financial statements prepared by the Company as required by the
Financial Instruments and Exchange Act of Japan.
The Company has made certain reclassifications of the previous years’ consolidated financial statements to conform to thepresentation used for the year ended December 31, 2020.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of consolidation and accounting forinvestments in affiliates

The accompanying consolidated financial statements include theaccounts of the Company and companies controlled directly or
indirectly by the Company. Companies over which the Company
exercises significant influence in terms of their operating and financial policies are included in the consolidated financial statements on an equity basis. All significant intercompany balances
and transactions are eliminated in consolidation. Further, certain
companies that do not have significant impact on the consolidated financial statements, are not consolidated or accounted for by
the equity-method.
The Company changed its consolidated fiscal year-end fromMarch 31 to December 31 following the approval for the Partial
Amendments to the Articles of Incorporation at the Ordinary
General Meeting of Shareholders held on June 25, 2019. As a result of this change, the year ended December 31, 2019 was a period of nine months from April 1, 2019 to December 31, 2019.
The fiscal year-ends of consolidated subsidiaries are now thesame as the consolidated fiscal year-end.
The excess of cost over underlying net assets excluding
non-controlling interests at fair value as of the date of acquisitionis accounted for as goodwill and amortized over 20 years on
a straight-line method.

(b) Cash equivalents

All highly liquid investments with a maturity of three months orless when purchased are considered cash equivalents, including
short-term time deposits with original maturities of three months
or less.

(c) Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies
are translated into yen at the exchange rates prevailing at the balance sheet date. All revenues and expenses associated with foreign currencies are translated at the rates of exchange prevailingwhen such transactions were made. The resulting exchange gainor loss is credited or charged to income.
The assets and liability accounts of overseas subsidiaries aretranslated into yen at the exchange rates prevailing at the balance sheet date. The revenue and expense accounts of the overseas subsidiaries are translated into yen at the average rates of
exchange during the period. The components of net assets excluding non-controlling interests are translated at their historicalexchange rates. The differences arising from the translation arepresented as translation adjustments and non-controlling interests in the accompanying consolidated financial statements.

(d) Securities

In general, securities are classified into three categories: trading,held-to-maturity or other securities. Securities held by the Company and its subsidiaries are all classified as other securities. Other securities with a determinable market value are mainly stated
at fair value with any changes in unrealized holding gain or loss,
net of the applicable income taxes, included directly in net assets.
Other securities without a determinable market value are statedat cost determined by the moving-average method. Cost of securities sold is determined by the moving- average method.

(e) Derivatives

at cost, determined by the moving-average method (balance
sheet value is carried at the lower of cost or market).

(g) Allowance for doubtful accounts

Allowance for doubtful accounts is provided at an amount determined based on the historical experience of bad debt with respect to ordinary receivables, plus an estimate of uncollectible
amounts determined by reference to specific doubtful receivablesfrom customers experiencing financial difficulties.

(h) Recoverable accounts under production sharing andrelated allowance

Cash investments made by the Company during exploration, development and production phases under a production sharing
contract are recorded as “Recoverable accounts under production sharing” so long as they are recoverable under the terms of
the relevant contract. When the Company receives crude oil andnatural gas in accordance with the relevant contract, an amountcorresponding to the purchase costs of the products (i.e., a cost
recovery portion of the investments) is released from this account.
Because these investments are recoverable only where commercial oil or gas is discovered, an allowance for recoverable accounts under production sharing is provided for probable losses
on investments made during the exploration stage under production sharing contracts arising from the failure to discover commercial oil and gas. In light of this uncertainty, an allowance forrecoverable accounts under production sharing is provided forprobable losses on development investment individually estimated for each project.

(i) Allowance for investments in exploration

Allowance for investments in exploration is provided for future
potential losses on investments in exploration companies at an
estimated amount based on the net assets of the investees.

(j) Tangible fixed assets (except leased assets)

Depreciation of overseas mining facilities is mainly computed by
the unit-of-production method.
For other tangible fixed assets, the straight-line method of depreciation is applied. The useful lives of fixed assets are based on
the estimated useful lives of the respective assets.

(k) Intangible assets (except leased assets)

Exploration and development rights at the exploration stage are
fully amortized in the year such rights are acquired, and those at
the production stage are amortized by the unit-of-production
method.
Mining rights are amortized mainly by the unit-of-production
method.
Other intangible assets are amortized mainly by the straightline method.
Capitalized computer software costs are amortized by thestraight-line method over a period of 5 years.

(l) Leased assets

Leased assets are amortized by the straight-line method over thelease period assuming no residual value.

(m) Accrued bonuses

Derivatives are stated at fair value.

Accrued bonuses to employees are provided at the expected
payment amount for the fiscal year.

(f) Inventories(n) Accrued bonuses to officers

Overseas inventories are carried mainly at cost, determined by
the average cost method (balance sheet value is carried at thelower of cost or market). Domestic inventories are carried mainly

Performance and Financial Overview

78

2020/12The Basis of our Value Creation

See accompanying notes to consolidated financial statements.

2020/12

1. BASIS OF PRESENTATION

Growth Strategies for Value Creation

Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Impairment loss
Amortization of goodwill
Provision for allowance for recoverable accounts under production sharing
Provision for exploration projects
Other provisions
Liability for retirement benefits
Interest and dividend income
Interest expense
Foreign exchange loss (gain)
Equity in losses (earnings) of affiliates
Loss (gain) on sales of investment securities
Loss (gain) on valuation of investment securities
Recovery of recoverable accounts under production sharing(capital expenditures)
Recoverable accounts under production sharing(operating expenditures)
Accounts receivable—trade
Inventories
Accounts payable—trade
Accounts receivable—otherAccounts payable—other
Advances received
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Payments for time deposits
Proceeds from time deposits
Payments for purchases of tangible fixed assets
Proceeds from sales of tangible fixed assets
Payments for purchases of intangible assets
Payments for purchases of investment securities
Proceeds from sales and redemptions of investment securities
Investment in recoverable accounts under production sharing(capital expenditures)
Decrease (increase) in short-term loans receivable
Long-term loans madeCollection of long-term loans receivable
Payments for purchases of long-term loans receivable
Payments for acquisitions of participating interests
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities
Increase (decrease) in short-term loans
Proceeds from long-term debt
Repayments of long-term debt
Proceeds from non-controlling interests for additional shares
Cash dividends paid
Cash dividends paid to non-controlling interests
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period

2019/12INPEX’s Vision and Value Creation

Consolidated Statement of Cash Flows

Accrued bonuses to officers are provided at the expected payment amount for the fiscal year.

INPEX CORPORATION Annual Report 2020

79

3. U.S. DOLLAR AMOUNTS
Provision for loss on business is provided for future potential losses on crude oil and natural gas development, production andsales business individually estimated for each project.

(p) Provision for exploration projects

Provision for exploration projects is provided for future expenditures as of December 31, 2020, of consolidated subsidiaries at the
exploration stage based on a schedule of investments in
exploration.

(q) Provision for stocks payment

Provision for stocks payment is provided to prepare for paymentsof stock benefits to directors and other under the share delivery
rule. The amount is based on the expected stock benefit payable.

(r) Accrued special repair and maintenance(s) Accounting for retirement benefits(Method of attributing expected retirement benefits
to proper periods)

When calculating retirement benefit obligations, the benefit
formula method is used for attributing expected retirement
benefits to periods through December 31, 2020. Because
certain subsidiaries are classified as small enterprises, a simplified method (the amount which would be required to be
paid if all active employees voluntarily terminated their employment as of the balance sheet date) is applied for the calculation of the retirement benefit obligation for thosesubsidiaries.

(Method of recognizing for actuarial differences)

Actuarial gains and losses are charged or credited to income
as incurred.

(t) Asset retirement obligations(u) Hedge accounting(Hedge accounting method)

Deferral hedge accounting is applied.

(Hedging instruments and hedged items)

Hedging instruments are interest rate currency swaps.
Hedged items are liabilities denominated in Japanese yen.

(Hedging policy)

Derivative transactions are limited to the scope of actual demands. And the Company does not engage in speculative
derivative transactions.

(Assessment of the effectiveness of hedge accounting)

The Company assesses the effectiveness of hedge accounting
by verifying the relationship between the hedging instruments
and hedged items.

Research and development expenses are charged to income as
incurred.

(w) Income taxes

Deferred tax assets and liabilities are determined based on the
differences between financial reporting and the tax bases of theassets and liabilities and are measured using the enacted tax
rates and laws which will be in effect when the differences are expected to reverse.

(x) Standards issued but not effective• “Accounting Standard for Revenue Recognition” (AccountingStandards Board of Japan (“ASBJ”) Statement No.29, issued
on March 31, 2020)• “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No.30, issued on March 31,
2020)(Overview)
These are comprehensive accounting standard and guidance
about revenue recognition. Revenue is recognized using thefollowing five steps.
1. Identify the contracts with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognize revenue when (or as) the entity satisfies a performance obligation

80

INPEX CORPORATION Annual Report 2020

Value Measurement” (ASBJ Guidance No.31, issued on July 4,
2019)• “Accounting Standard for Measurement of Inventories” (ASBJ
Statement No.9, revised on July 4, 2019)• “Accounting Standard for Financial Instruments” (ASBJ Statement No.10, revised on July 4, 2019)• “Implementation Guidance on Disclosures about Fair Value of
Financial Instruments” (ASBJ Guidance No.19, revised on
March 31, 2020)(Overview)
To enhance comparability with international accounting standards, ASBJ developed “Accounting Standard for Fair Value
Measurement” and “Implementation Guidance on Accounting Standard for Fair Value Measurement”, and establishedcertain guidelines about fair value measurement. These apply
to the following items.
· Financial instruments based on “Accounting Standard for Financial Instruments”· Inventories held for trading based on “Accounting Standard
for Measurement of Inventories”
In addition, ASBJ revised “Implementation Guidance on Disclosures about Fair Value of Financial Instruments”, which requires information in the notes about breakdown of fair valueof financial instruments.
(Scheduled effective date)
The accounting standard and guidance are scheduled to takeeffect from the beginning of the year ending December 31,
2022.
(Impact of adopting standards)
The impact of adopting the accounting standard and guidanceon the consolidated financial statements is now underevaluation.

• “Accounting Standard for Accounting Policy Disclosures, Ac-

counting Changes and Error Corrections” (ASBJ Statement
No.24, revised on March 31, 2020)(Overview)
The purpose is to outline accounting principles and procedures adopted, when the related accounting standards are
not clearly defined.
(Scheduled effective date)
The accounting standard is scheduled to take effect from theend of the year ending December 31, 2022.

• “Accounting Standard for Disclosure of Accounting Estimates”(ASBJ Statement No.31, issued on March 31, 2020)(Overview)
The purpose is to disclose useful information for users of financial statements, which is about accounting estimates of
the current fiscal year having significant influence on financial
statements for the next fiscal year.
(Scheduled effective date)
The accounting standard is scheduled to take effect from theend of the year ending December 31, 2022.

(y) Additional information(Accounting estimates for the impact of the spread of
COVID-19)

The Group’s consolidated financial statements include themanagement’s estimates and assumptions, which have an
impact on the amount of assets, liabilities, revenue andexpenses.
These estimates and assumptions are based on the management’s best judgment that considers various factors
which seem reasonable as of December 31, 2020, such as
the impact of the spread of COVID-19 and the fluctuationsof crude oil prices due to trends in oil-producing countries.
The average price of Brent crude was US$43.2 in the year
ended December 31, 2020, which was low, but the Group estimates that it will steadily recover after the year ending December 31, 2021. However, there is a possibility that actual
results may be different from the estimates and assumptions
because of their uncertainty.
The assessment of impairment loss on fixed assets is theitem on which the estimates and assumptions have an especially significant impact in the Group.

(a) Policy regarding financial instruments

The Company raises funds for oil and gas development and production, construction or expansion of gas infrastructure primarily
from cash flow on hand and from bank loans. Oil and gas development projects are primarily funded from long-term loans that
the Company has secured from the Japan Bank for International
Cooperation, Japanese commercial banks and others. Japan Oil,Gas and Metals National Corporation has provided guarantees
for the principal on certain outstanding amounts of the Company’s long-term loans. The Development Bank of Japan and Japanese commercial banks and others have provided long-termloans for the construction or expansion of domestic gas infrastructure. The Company generally borrows loans with variable interest rates, while some loans are with a fixed interest ratedepending on the nature of each project.
Regarding the financing policy, the Company manages funds
in consideration of being low-risk and high-liquidity. The Company uses derivative transactions only to manage risks of forecasted
transactions and portfolio assets, and does not engage in speculative derivative transactions.

(b) Details of financial instruments, associated risks andrisk management(Credit risk related to trade receivables)

Trade receivables such as accounts receivable—trade and accounts receivable—other are comprised mainly from sales ofcrude oil and natural gas. Main trading partners are national oil
companies, major oil companies and others. In line with the criteria for trading and credit exposure management, the Company
properly analyzes the status of trading partners for early detection
and reduction of default risks.

(Market price fluctuation risk related to securities)

For marketable securities and investment securities exposed tomarket price fluctuation risk, analysis of market values is regularly
reported to the Executive Committee. For shares of stock, theCompany mainly holds shares of trading partners and others toestablish close and smooth relationships for the purpose of maintaining a medium- to long-term stable business. A part of theseshares is held for the purpose of investment.

(Interest rate fluctuation risk related to short-termloans and long-term debt)

Loans are mainly used to fund oil and natural gas development
projects and construction or expansion of domestic gas infrastructure and others. The borrowing period is determined considering the financial prospects of the project and useful lives of the
facilities. Loans with variable interest rates are exposed to interest
rate fluctuation risk, however, the Company analyzes the impact
of interest rate fluctuation at the time of borrowing and on an annual basis, and leverages fixed-rate-loans as necessary considering the project statuses.

(Exchange rates fluctuation risk related to assets andliabilities in foreign currencies)

As most of the Company’s business is conducted overseas, theCompany is exposed to exchange rate fluctuation risk due toa large portion of monetary assets and liabilities held in foreign
currencies such as cash and deposits, accounts receivables andloans required in overseas projects. For this reason, the Company
endeavors to reduce exchange rate fluctuation risk by maintaining the position between assets and liabilities in foreign currencies. In addition to planned expenditures in foreign currencies,
the Company manages exchange rate fluctuation risk throughderivative transactions such as foreign exchange forwards andothers as necessary.

(Management of derivative transactions)

For the above derivative transactions, the Company follows its internal rules. Market values of these derivatives are regularly reported to the Executive Committee, and the Company onlytransacts with financial institutions with high credit ratings to reduce counterparty risks for the use of derivatives. Regarding theGroup’s hedge accounting, hedging instruments, hedged items,
hedging policy and assessment of the effectiveness of hedge accounting are described in “(u) Hedge accounting” of “2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES”.

(Management of liquidity risk related to financing)

The finance and accounting division controls cash management
based on a monthly financing plan prepared by each project division and secures sufficient liquidity on hand to prepare for liquidity risk.

5. SECURITIES(a) Information regarding other securities as of December 31, 2019 and 2020 is as follows:
Millions of yen

December 31, 2019

Acquisition cost

Carrying value

Securities with carrying values exceeding their acquisition costs
Stock¥15,935¥20,103
Other
2,178
6,200
Subtotal
18,11426,303
Securities with acquisition costs exceeding their carrying values
Stock23,691
22,409Subtotal
23,691
22,409Total¥41,806¥48,713

Unrealized gain
(loss)

Performance and Financial Overview(v) Research and development expenses

Statement No.30, issued on July 4, 2019)• “Implementation Guidance on Accounting Standard for Fair

4. STATUS OF FINANCIAL INSTRUMENTS

The Basis of our Value Creation

Asset retirement obligations are recorded by a reasonable estimate of the present value of retirement costs incurred upon termination of the operation and production with respect to oil andgas production facilities, based on the oil and gas contracts orlaws and regulations within the countries in which the Company
operates or has working interests.

• “Accounting Standard for Fair Value Measurement” (ASBJ

The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic computation only, at¥103.52=US$1.00, the approximate exchange rate in effect as of December 31, 2020. This translation should not be construed as a representation that yen have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate.

Growth Strategies for Value Creation

Accrued special repair and maintenance are provided for planned
major repair and maintenance activities on tanks in certain subsidiaries at amounts accumulated through the next activity.

(Scheduled effective date)
The accounting standard and guidance are scheduled to takeeffect from the beginning of the year ending December 31,
2022.
(Impact of adopting standards)
The impact of adopting the accounting standard and guidanceon consolidated financial statements is now under evaluation.

INPEX’s Vision and Value Creation(o) Provision for loss on business¥ 4,168
4,021
8,189(1,282)(1,282)¥ 6,907

Millions of yen

December 31, 2020

Acquisition cost

Carrying value

Securities with carrying values exceeding their acquisition costs
Stock¥ 2,863¥ 4,399
Other
2,178
7,198
Subtotal
5,041
11,598
Securities with acquisition costs exceeding their carrying values
Stock30,385
26,810Subtotal
30,385
26,810Total¥35,427¥38,408

Thousands of U.S. dollars
Unrealized gain
(loss)

Acquisition cost

Carrying value

Unrealized gain
(loss)¥ 1,536
5,019
6,556

$ 27,656
21,03948,695$ 42,494
69,532
112,036$ 14,837
48,483
63,330(3,575)(3,575)¥ 2,981

293,518
293,518$342,223

258,983
258,983$371,020(34,534)(34,534)$ 28,796

INPEX CORPORATION Annual Report 2020

81

7. INCOME TAXESThe Company and its domestic consolidated subsidiaries are subject to income taxes which, in the aggregate, resulted in a statutory tax
rate of approximately 28.0% for the years ended December 31, 2019 and 2020.

(c) Components of securities for which it is extremely difficult to determine fair value as of December 31, 2019 and 2020are summarized as follows:(a) The effective tax rates reflected in the consolidated statement of income for the years ended December 31, 2019 and2020 differ from the statutory tax rate for the following reasons:Millions of yen

Unlisted securities
Stocks of subsidiaries and affiliates
Total

2019/12¥ 23,256
306,557¥329,814

Thousands of U.S. dollars

2020/12¥ 21,691
237,767¥259,458

2020/12$ 209,534
2,296,821$2,506,356

These securities are not included in (a) as they have no quoted market prices and it is extremely difficult to determine their fair value. For
shares of exploration companies, an allowance for investments in exploration is provided at an estimated amount based on the financial position of the investees.

(a) Short-term borrowings as of December 31, 2019 and 2020 are as follows:
Millions of yen

2019/12

Thousands of U.S. dollars

2020/122020/12

Short-term borrowings from banks and others(Interest rate is 4.498% at December 31, 2019)(Interest rate ranging from 0.503% to 4.498% at December 31,
2020)¥4,754¥93,614$904,308

Millions of yen

2020/122020/12¥1,113,025¥1,141,233$11,024,275

162,077¥ 950,948

81,519¥1,059,713

787,471$10,236,794(0.7)(24.2)

25.4

81.7

0.1
—
4.1
75.6%

9.3
7.7
(0.2)
254.0%

2020/12¥   35,714
10,37815,338231,086
1,067,388
138
55,495144,009722,546
22,253¥2,304,349

Thousands of U.S. dollars

2020/12$   344,996
100,251
148,164
2,232,283
10,310,935
1,333
536,079
1,391,122
6,979,772
214,963$22,259,940(d) The aggregate annual maturities of long-term debt subsequent to December 31, 2020 are summarized as follows:
Years ending December 31,

Millions of yen

Thousands of U.S. dollars

2021
2022
2023
2024
2025
2026 and thereafterTotal¥   81,519
139,255
91,317137,149
217,365474,625¥1,141,233$   787,471
1,345,198
882,119
1,324,855
2,099,739
4,584,862$11,024,275

Deferred tax assets
Exploration expenditures
Loss on valuation of investment securities
Recoverable accounts under production sharing(foreign taxes)
Allowance for investments in exploration
Foreign taxes payable
Net operating loss carry-forwards*1
Accumulated depreciation
Liability for retirement benefits
Provision for loss on businessTranslation differences of assets and liabilities denominated inforeign currencies
Asset retirement obligations
Allowance for doubtful accounts
Impairment loss
Other
Total gross deferred tax assets
Valuation allowance for net operating loss carry-forwards*1
Valuation allowance for total amount of deductible temporary
difference and others
Total valuation allowance
Total deferred tax assets
Deferred tax liabilities
Foreign taxes
Translation differences of assets and liabilities denominated inforeign currencies
Translation differences due to an application of purchaseaccounting method
Reserve for exploration
Unrealized holding gain on securities
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)

Thousands of U.S. dollars

2019/122020/122020/12¥52,084
3,013¥53,622
4,059$517,986
39,209

1,567

2,821

27,250670
48,454
351,779
26,378
2,583
2,418

688
14,782399,633
27,489
2,632
2,618

6,646
142,7933,860,442
265,542
25,42525,28910,986

2,883

27,84914,091
3,665
37,62247,892603,208(237,616)

15,5503,613
41,14756,319627,864(270,477)

150,21234,901
397,478
544,039
6,065,146(2,612,799)(210,676)(181,883)(1,756,984)(448,292)
154,915(452,360)
175,504(4,369,783)
1,695,363(176,021)(173,016)(1,671,329)

(7)

(517)

(4,994)(6,799)(5,347)(51,651)(3,245)(1,422)(4,254)(191,750)¥(36,834)(3,650)(979)(14,350)(197,861)¥(22,356)(35,258)(9,457)(138,620)(1,911,331)$(215,958)

INPEX CORPORATION Annual Report 2020

Performance and Financial Overview

2019/12¥   31,072
12,344
12,798
224,663
1,181,680
146
41,453202,344673,576
7,068¥2,387,149

The above is mainly related to Ichthys LNG Project Finance, and includes others that are pledged as collateral for liabilities of affiliates.

INPEX CORPORATION Annual Report 2020

2.7
(2.1)
47.2
142.7
(3.2)
(38.5)
2.9

The Basis of our Value Creation

2019/12

Millions of yen

82

0.4
(0.1)
0.0
26.3
(7.8)
(0.4)
0.3

Millions of yen

Thousands of U.S. dollars(c) Assets pledged as of December 31, 2019 and 2020 are as follows:

Cash and cash equivalents
Accounts receivable—trade
Inventories
Wells
Machinery, equipment and vehicles
Land
Construction in progress
Investment securities
Long-term loans receivable
Other
Total

2020/1228.0%(b) The significant components of deferred tax assets and liabilities as of December 31, 2019 and 2020 are described below.

(b) Long-term debt as of December 31, 2019 and 2020 are as follows:

Loans from banks and others, due through 2035
(Interest rates ranging from 0.028% to 3.982% and from
0.035% to 2.589% at December 31, 2019 and 2020)
Less: Current portion
Amounts on the consolidated balance sheet

Differences of effective tax rates applied to tax effect accounting(overseas subsidiaries)
Retained earnings of certain subsidiaries
Reversal of translation adjustments
Other
Effective tax rates

2019/1228.0%

Growth Strategies for Value Creation

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT, ASEETS PLEDGED

Statutory tax rate
Effect of:Permanently non-taxable expenses such as entertainment expenses
Permanently non-taxable income such as dividends income
Valuation allowance
Foreign taxes
Foreign tax credits
Adjustment of deducted amounts of foreign taxes
Amortization of goodwill
Differences of effective tax rates applied to tax effect accounting(domestic subsidiaries)

INPEX’s Vision and Value Creation(b) There is no information regarding sales of securities classified as other securities for the years ended December 31,
2019 and 2020.

83

9. NET ASSETS
Millions of yen
1 year or less

December 31, 2019

Net operating loss carry-forwards*a
Valuation allowance
Deferred tax assets

More than 5 years
and up to 10 years¥ 32,201(27,583)¥ 4,618¥ 43,908(14,932)¥ 28,976

More than 1 year
and up to 5 years

More than 5 years
and up to 10 years¥ 66,041(27,264)¥ 38,776¥ 34,977(20,102)¥ 14,874¥ 1,963(1,678)¥ 284

More than
10 years*b

Total¥ 273,704(193,422)¥ 80,282¥ 351,779(237,616)¥ 114,162

Millions of yen
1 year or less

December 31, 2020

Net operating loss carry-forwards*
Valuation allowance
Deferred tax assets

a

¥ 495
(479)
¥ 16

More than
10 years*b

Total¥ 298,118(222,630)¥ 75,488¥ 399,633(270,477)¥ 129,156

Thousands of U.S. dollars

December 31, 2020

1 year or less

Net operating loss carry-forwards*a
Valuation allowance
Deferred tax assets$ 4,781(4,627)$ 154

More than 1 year
and up to 5 years

More than 5 years
and up to 10 years$ 637,954(263,369)$ 374,574$ 337,876(194,184)$ 143,682

More than
10 years*b

Total$ 2,879,810(2,150,598)$ 729,211$ 3,860,442(2,612,799)$ 1,247,642

10. AMOUNTS PER SHARE
Amounts per share as of December 31, 2019 and 2020 are as follows:
Yen*a Net operating loss carry-forwards is multiplied by statutory tax rate.
*b Including amounts with no expiration date under applicable laws and regulations.

Net assets excluding non-controlling interests per share
Cash dividends per share
Net income (loss) per share

8. COMPREHENSIVE INCOME

Millions of yen

Unrealized holding gain (loss) on securities
Amount recognized during the period
Amount of reclassification adjustments
Before income tax effectAmount of income tax effectUnrealized gain (loss) from hedging instruments
Amount recognized during the period

84

2020/12¥   469
2,994¥ (10,304)
6,378$   (99,536)
61,611

3,464
(778)

(3,926)442(37,925)
4,269

2,685

(3,483)(33,645)

(192)

281

2,714

(192)

281

2,714

(27,041)(2,516)(128,446)
18,528(1,240,784)
178,979(29,557)(109,917)(1,061,794)

Share of other comprehensive income of affiliates
accounted for by the equity-method
Amount recognized during the period
Amount of reclassification adjustments(22,298)(2,310)(49,668)
9,763(479,791)
94,310Total other comprehensive income(24,608)¥(51,674)(39,904)¥(153,024)(385,471)$(1,478,207)

INPEX CORPORATION Annual Report 2020

2020/12¥2,082.43
30.00¥   84.61¥1,874.08
24.00¥  (76.50)

2020/12$18.100.23$ (0.74)

Diluted net income per share is not presented because there are no dilutive potential of shares of common stock.
Net assets excluding non-controlling interests per share are computed based on the net assets excluding non-controlling interests andthe number of shares of common stock outstanding at the year end.
Cash dividends per share represent the cash dividends proposed by the Board of Directors together with the interim cash dividends
paid.
Net income (loss) per share is computed based on the net income available for distribution to shareholders of common stock and theaverage number of shares of common stock outstanding during the year.
For the purpose of computing net assets excluding non-controlling interests per share, the Company’s shares held by “the Board Incentive
Plan Trust”* recorded as treasury stock under shareholders’ equity are included in the treasury stock to be deducted from the total numberof shares issued at the end of the period. Additionally, in computing net income (loss) per share, above shares of the Company are includedin the treasury stock to be deducted from the average number of shares during the period. The numbers of shares of treasury stock deducted from the total number of shares issued at the end of the period in computing net assets excluding non-controlling interests per share
were 155,416 shares and 152,569 shares as of December 31, 2019 and 2020 respectively. The numbers of shares of treasury stock deductedfrom the average number of shares during the period in computing net income (loss) per share were 156,113 shares and 153,372 shares forthe years ended December 31, 2019 and 2020 respectively.
* “The Board Incentive Plan Trust” is a share-based remuneration system under which a predetermined number of shares of the Company or the amountof money equivalent to the proceeds from the disposal of those shares are delivered or provided to the eligible Directors and Executive Officers of theCompany according to their positions and other factors, covering the five calendar years from 2018 to 2023.

INPEX CORPORATION Annual Report 2020

Performance and Financial Overview

Translation adjustments
Amount recognized during the period
Amount of reclassification adjustment

Thousands of U.S. dollars

2020/12

U.S. dollars

2019/12The Basis of our Value Creation

Amount of reclassification adjustments and income tax effects allocated to each component of other comprehensive income for the years
ended December 31, 2019 and 2020 are as follows:

2019/12

A stock by a resolution of the meeting of the Board of Directors incase where Class A stock is transferred to a non-public entity.
The Company conducted a stock split at a ratio of 1:400 ofcommon stock with October 1, 2013 as the effective date, but forClass A stock, no stock split was conducted. The Articles of Incorporation specifies that dividends of Class A stock are equivalent
to dividends of a common stock prior to the stock split. The cash
dividends of Class A stock for the year ended December 31, 2020
amounted to ¥9,600.
Under the Companies Act of Japan, 10% of the amount to be
distributed as dividends from capital surplus (other than capitalreserve) and retained earnings (other than legal reserve) shouldbe transferred to capital reserve and legal reserve, respectively,
up to the point where total amount of capital reserve and legal
reserve equals 25% of the common stock account.
Distributions can be made at any time by a resolution of themeeting of shareholders, or the Board of Directors if certain conditions are met, but neither capital reserve nor legal reserve isavailable for distributions.

Growth Strategies for Value Creation

More than 1 year
and up to 5 years

The total number of the Company’s shares issued consisted of
1,462,323,600 shares of common stock and 1 Class A stock as ofDecember 31, 2020.
Class A stock has no voting rights at the common shareholders’ meeting, but the ownership of Class A stock gives its holder
a right of veto over certain important matters described below.
However, requirements stipulated in the Articles of Incorporationneed to be met in cases involving the exercise of the veto over
the appointment or removal of directors, the disposition of all ora portion of material assets, and business integration;• Appointment or removal of Directors• Disposition of all or a portion of material assets• Amendments to the Articles of Incorporation relating to theCompany’s business objectives and granting voting rights toany shares other than the common shares of the Company• Business integration• Capital reduction• Company dissolution
Class A stock shareholder may request the Company to acquire Class A stock. Besides, the Company may also acquire ClassINPEX’s Vision and Value Creation*1 Net operating loss carry-forwards and relevant deferred tax assets by expiration dates are as follows:8512. OTHER FINANCIAL INSTRUMENTS(a) Derivatives not subject to hedge accounting(a) The carrying value and estimated fair value of financial instruments excluding marketable securities and investment
securities which are disclosed in Note 5.(a) and derivatives which are disclosed in Note 11 as of December 31, 2019and 2020 are as shown below. The following summary also excludes cash and cash equivalents, time deposits, and accounts receivable—trade for which fair values approximate their carrying amounts.

Contract amounts, fair value and valuation gain (loss) regarding derivatives not subject to hedge accounting as of December 31, 2019 and2020 are as follows:
Millions of yen

December 31, 2019

Foreign exchange forwards*
Sell (CAD) Buy (USD)

Contract amounts

Due after one year

Fair value

Millions of yen

Valuation gain (loss)

December 31, 2019¥45,523¥—

Contract amounts

Due after one year¥(663)¥(663)INPEX’s Vision and Value Creation

11. DERIVATIVE TRANSACTIONS

Carrying value

Short-term borrowings and current portion of long-term debt
Long-term debt

Estimated fair value¥166,831¥950,948¥165,326¥940,857

Millions of yen

December 31, 2020

Fair value¥ 43,920¥—¥ (314)¥ (314)

Interest rate currency swaps*
Receive/floating/USD and pay/fixed/JPY¥124,293¥72,464¥2,770¥2,770Contract amounts

Due after one year

Thousands of U.S. dollars
Fair value

Valuation gain (loss)

Foreign exchange forwards*
Sell (CAD) Buy (USD)$ 424,265$—$ (3,033)$ (3,033)

Interest rate currency swaps*
Receive/floating/USD and pay/fixed/JPY$1,200,666$700,000$26,758$26,758

Thousands of U.S. dollars

December 31, 2020

Carrying value

Estimated fair value

Carrying value

Estimated fair value

Long-term loans receivable
Short-term borrowings and current portion of
long-term debt
Long-term debt

¥ 911,424¥ 917,926$ 8,804,327$ 8,867,136

175,133

174,600

1,691,779

1,686,630¥1,059,713¥1,053,580$10,236,794$10,177,550(b) For other financial instruments, computation methods of estimated fair value are as shown below.
(Long-term loans receivable)

The estimated fair value of long-term loans receivable is calculated by applying a discount rate to the total of principal and interest.
The discount rate is based on the assumed interest rate if a similar new loan is entered into.

(Short-term borrowings and current portion of long-term debt)* Fair value is the price obtained from the counterparty financial institutions.

The estimated fair value of current portion of long-term debt is calculated by the same method as long-term debt. For short-term borrowings, the relevant carrying value is used since the item is settled in a short periods of time and its fair value is almost the same as the
carrying value.

(b) Derivatives subject to hedge accounting(Long-term debt)

The estimated fair value of long-term debt is calculated by applying a discount rate to the total of principal and interest. The discountrate is based on the assumed interest rate if a similar new loan is entered into.

There are no derivatives subject to hedge accounting as of December 31, 2019.

Millions of yen

Interest rate currency swaps*
Receive/floating/USD and pay/fixed/JPY

Principal items hedged

Liabilities (JPY)

Contract amounts

Due after one year

¥124,293¥72,464

Fair value

Interest rate currency swaps*
Receive/floating/USD and pay/fixed/JPY

Principal items hedged

Liabilities (JPY)* Fair value is the price obtained from the counterparty financial institutions.

Contract amounts

Due after one year

$1,200,666$700,000

13. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses included in general and administrative expenses and cost of sales amounted to ¥442 million and ¥483
million ($4,665 thousand) for the years ended December 31, 2019 and 2020, respectively.

¥107

14. IMPAIRMENT LOSS

Thousands of U.S. dollars

December 31, 2020

The Basis of our Value Creation

Contract amounts, fair value and valuation gain (loss) regarding derivatives subject to hedge accounting as of December 31, 2020 are as
follows:

December 31, 2020

Growth Strategies for Value Creation

Foreign exchange forwards*
Sell (CAD) Buy (USD)

December 31, 2020

Millions of yen

Valuation gain (loss)

Fair value$1,033For the year ended December 31, 2019
Disclosure has been omitted because it does not have significant impact on the consolidated financial statements.

Performance and Financial Overview

For the year ended December 31, 2020
The Company groups mining area and other assets as a basic unit that generates cash inflows independently of other groups of assets. In
light of the substantial decline in crude oil prices resulting from the COVID-19-induced reduction in global energy demand and other factors, the recoverable amount of these groups of assets was expected to decrease; therefore, the Company reduced the respective carrying
amounts of the assets listed below to the recoverable amounts, posting the reductions as impairment loss.
Impairment loss
Use

Location

Assets related to Prelude FLNG
Commonwealth of Australia
Project

Assets related to Tight Oil
Project (Eagle Ford)

Texas, United States

Assets related to Lucius Oil
Field

Gulf of Mexico, United States

Other
Total

Classification

Construction in progress
Mining rights
Subtotal
Wells
Machinery, equipment
and vehicles
Mining rights
Subtotal
Wells
Machinery, equipment
and vehicles
Mining rights
Subtotal

Millions of yen

Thousands of
U.S. dollars¥ 97,097
31,965129,062
11,178$ 937,954
308,780
1,246,734
107,979

1,595

15,407

20,462
33,235
3,553

197,662
321,049
34,321

2,421

23,386

12,71918,693
8,948¥189,940

122,865
180,573
86,437$1,834,814

The recoverable amount of the assets related to Prelude FLNG Project, Tight Oil Project (Eagle Ford) and Lucius Oil Field is reasonably estimated by discounting the future cash flows at a rate of 7.9-10.7%.

86

INPEX CORPORATION Annual Report 2020

INPEX CORPORATION Annual Report 202087

15. RETIREMENT BENEFITS(6) Plan assets (excluding plans applying simplified methods)

Components of plan assets(a) Defined benefit plans(1) Reconciliation of beginning and ending balances of the retirement benefit obligations (excluding plans included in (3))
Millions of yen

2019/12
Balance at beginning of the period
Service cost
Interest cost
Actuarial loss (gain)
Retirement benefits paid
Balance at end of the period

Thousands of U.S. dollars

2020/12¥21,611
778
166
1,740
(882)
¥23,413¥23,413
1,176
91
(307)
(1,107)¥23,267

2020/12$226,168
11,360879(2,965)(10,693)$224,758

Stock
General accounts
Bonds
Other
Total

2019/12¥16,047
200
14
469
(585)
¥16,147¥16,147
270
(397)
565
(694)
¥15,891

2020/12$155,979
2,608(3,835)
5,457(6,704)$153,506

2019/12(8) Basis of the actuarial assumptions

¥702
142
(57)
(14)
(27)
¥744

¥744
185
(65)
(17)
(64)
¥782

2019/12$7,187
1,787
(627)
(164)
(618)
$7,554

Thousands of U.S. dollars

2020/122020/12

0.4%
1.8%

0.5%
1.8%

(b) Defined contribution plans

The Group’s contributions for defined contribution plans amounted to ¥2,130 million and ¥2,147 million ($20,739 thousand) for the years
ended December 31, 2019 and 2020, respectively.

16. ASSET RETIREMENT OBLIGATIONS
The changes in asset retirement obligations for the years ended December 31, 2019 and 2020 are as follows:
Millions of yen

2020/12(4) Reconciliation between retirement benefit obligations and plan assets at fair value and liability for retirement benefits and asset for retirement benefits on the consolidated balance sheet
Millions of yen

Discount rateLong-term expected return rate on plan assets

2020/12¥23,640(16,343)¥23,512(16,090)$227,125(155,428)

Retirement benefit obligations (unfunded plans)

7,296
714

7,421
737

71,686
7,119

Net liability (asset) on consolidated balance sheet

8,011

8,158

78,806

Liability for retirement benefits
Net liability (asset) on consolidated balance sheet

8,011¥ 8,011

8,158¥ 8,158

78,806$ 78,806* Including plans applying simplified methods.

2020/122020/12¥113,416
4,545
2,524
(1,540)18,968(1,031)¥136,882¥136,882
1,017
2,835
(211)
40,689(7,591)¥173,622$1,322,275
9,824
27,386(2,038)393,054(73,328)$1,677,183*1 “Change in estimates” for the years ended December 31, 2019 and 2020 mainly reflects the revised discount rate of certain subsidiaries.
*2 “Other” mainly includes the change due to foreign exchange rates fluctuation.

(b) Asset retirement obligations other than those recognized in the consolidated balance sheet

Regarding domestic oil and gas production facilities and gas supply and marketing facilities, the Group has obligations to prevent mine
pollution at abandoned well sites after the completion of the production under Mine Safety Act and restore sites to their original conditionat the time of business termination in accordance with lease contracts.
Among these facilities, certain domestic oil and gas production facilities are operated complementarily and holistically in connection
with the LNG terminal and it is impossible to determine the timing of decommission since it is difficult to formulate reasonable long-term
production plan considering the balance between the production and the inflow of LNG at this time. The Group plans to operate domesticgas supply and marketing facilities permanently as highly public infrastructures for energy supply.
The Group also has obligations to decommission mines with respect to certain overseas oil production facilities. However, it is difficult toestimate retirement costs since the information about decommissioning work including the assets subject to the work based on the approval by the government of oil-producing country has not been specified yet.
Therefore, it is impossible to reasonably estimate the relevant asset retirement obligations as of December 31, 2020, and the Group
does not recognize them in the consolidated balance sheet.

Performance and Financial Overview

Retirement benefit obligations (funded plans)
Plan assets at fair value

Balance at beginning of the period
New obligations
Accretion expenses
Obligations settled
Change in estimates *1
Other *2
Balance at end of the period

Thousands of U.S. dollars

2019/12The Basis of our Value Creation

Balance at beginning of the period
Retirement benefit expenses
Retirement benefits paid
Contributions to the plans
Other
Balance at end of the period

Thousands of U.S. dollars

2020/12

26%
45
23
6
100%

(a) Asset retirement obligations recognized in the consolidated balance sheet(3) Reconciliation of beginning and ending balances of liability for retirement benefits applying simplified methods
Millions of yen

22%
44
19
15
100%

2019/12
Thousands of U.S. dollars

2020/122020/12Growth Strategies for Value Creation

Millions of yen

2019/12(7) Basis of measurement for long-term expected return rate on plan assets
The expected long-term return rate on plan assets is determined based on the current and expected future distribution of plan assets andthe current and expected future long-term return rate on various assets of which plan assets are composed.

(2) Reconciliation of beginning and ending balances of plan assets at fair value (excluding plans included in (3))

Balance at beginning of the period
Expected return on plan assets
Actuarial gain (loss)
Contributions to the plans
Retirement benefits paid
Balance at end of the period

INPEX’s Vision and Value Creation

Retirement benefits for the years ended December 31, 2019 and 2020 are as follows:(5) Details of retirement benefit expenses
Millions of yen

2019/12Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss (gain)
Retirement benefit expenses under simplified methods
Retirement benefit expenses for defined benefit plans

88

INPEX CORPORATION Annual Report 2020

Thousands of U.S. dollars

2020/122020/12¥ 778
166¥1,17691$11,360
879

(200)
1,725
142
¥2,612

(270)
90
185
¥1,274(2,608)869
1,787$12,306

INPEX CORPORATION Annual Report 202089

17. GOODWILL
Millions of yen

2019/12
Balance at beginning of the period
Goodwill acquired during the period
Amortization of goodwill
Balance at end of the period

Millions of yen
Thousands of U.S. dollars

2020/12¥47,275—(5,070)¥42,206

2020/12¥42,206—(6,760)¥35,445$407,708—(65,301)$342,397

18. LEASESYear ended
December 31, 2020

Japan

Sales to third parties
Intercompany sales andtransfers between
segments

Asia & Oceania

Eurasia(Europe & NIS)

Middle East &Africa¥115,838¥ 220,969¥ 68,369¥352,388

—

5,320

—

Total sales

115,838

226,290

Segment income (loss)

14,341

56,522

Segment assets

255,069

Total

Adjustments*1

Consolidated*2¥13,481¥ 771,046¥—¥ 771,046

—

—

5,320

(5,320)—68,369352,388

13,481

776,367(5,320)771,046

4,481

186,408(2,128)259,625(11,154)

248,4713,024,426

572,642

493,092

24,455

4,369,687

264,8314,634,518

15,075

100,812

6,923

42,476

7,938

173,227871

174,098

—

—

—

—

(192)

(192)

6,952

6,760

2,014

198,065

14,417

12,471—

226,969

1,205

228,175¥  4,990¥ 118,840¥  5,909¥ 46,589¥ 7,783¥ 184,113¥938¥ 185,052

Japan

Asia & Oceania

Eurasia(Europe & NIS)

Middle East &AfricaTotal

Adjustments*1

Consolidated*2$1,118,991$2,134,553$660,442$3,404,057$130,226$7,448,280$—$ 7,448,280—

51,391———

51,391(51,391)—

1,118,991

2,185,954

660,4423,404,057

130,226

7,499,681(51,391)

7,448,280

138,533

546,000

43,2861,800,695(20,556)

2,507,969(107,747)

2,400,222

2,463,958

29,215,861

5,531,704

4,763,253

236,234

42,211,041

2,558,259

44,769,300

145,624

973,840

66,875

410,316

76,6801,673,367

8,413

1,681,781

—

—

—

—

(1,854)(1,854)

67,15665,301

19,455

1,913,301

139,267

120,469—

2,192,513

11,6402,204,163$   48,203$1,147,990$ 57,080$ 450,048$ 75,183$1,778,525$9,061$ 1,787,596

As Lessee

Amortization of
goodwill
Millions of yen

2021
2022 and thereafter
Total

Investment to affiliates
accounted for by
the equity-method

Thousands of U.S. dollars¥ 1,825
8,749¥10,575$ 17,629
84,515$102,154

Increase of tangible
fixed assets andintangible assets

19. CONTINGENT LIABILITIESThousands of U.S. dollars

As of December 31, 2020, the Company and its consolidated subsidiaries were contingently liable as guarantors of indebtedness of affiliates
in the aggregate amount of ¥344,690 million ($3,329,694 thousand).

Sales to third parties

Segment information for the years ended December 31, 2019 and 2020

Segment income (loss)

Total sales
Segment assets

The reportable segments for the Group’s oil and natural gas development activities are composed of individual mining area and others forwhich separate financial information is available in order for the Board of Directors to make Group management decisions. Since the Group
operates oil and natural gas businesses globally, the Group’s reportable segments are the mining areas and others by geographical region,
categorized in “Japan”, “Asia & Oceania” (mainly Indonesia, Australia and East Timor), “Eurasia (Europe & NIS)” (mainly Azerbaijan and Kazakhstan), “Middle East & Africa” (mainly United Arab Emirates) and “Americas.”
The Company produces oil and natural gas in each segment. In addition, the Company conducts purchasing and marketing activities fornatural gas and petroleum products and others in “Japan” segment.

(b) Basis of measurement for sales, income (loss), assets and other items by reportable segment

Accounting policies for the reportable segments are substantially the same as those described in “Note 2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES”. Internal sales between segments are based on prices for third-party transactions.

Millions of yen
Japan

Sales to third parties

Asia & Oceania

Eurasia(Europe & NIS)

Middle East &Africa¥ 97,038¥ 240,927¥ 79,054¥569,166

—

4,465

—

—

Intercompany sales andtransfers between
segments

97,038245,392

79,054569,166

Total

Adjustments*1

Consolidated*2¥13,819¥1,000,005¥—¥1,000,005

—

4,465

(4,465)—

Americas13,8191,004,470(4,465)1,000,005

Segment income (loss)

13,156

117,801

20,806364,467(6,545)

509,685(11,044)498,641

Segment assets

274,520

3,063,677

596,930

562,032

82,6304,579,791

270,2034,849,995

11,68572,8905,004

37,4107,811

134,802826

135,629

—

—

—

—

(192)

(192)

5,214

5,022

1,904

257,139

12,44024,421—

295,905

1,060

296,965¥  2,598¥   74,784¥  6,736¥52,384¥49,110¥ 185,614¥997¥ 186,612

Other items

Amortization of
goodwill
Investment to affiliates
accounted for by
the equity-method
Increase of tangible
fixed assets andintangible assets

INPEX CORPORATION Annual Report 2020

Other items
Depreciation andamortization
Amortization of
goodwill
Investment to affiliates
accounted for by
the equity-method
Increase of tangible
fixed assets andintangible assets

Performance and Financial Overview(c) Information on sales, income (loss), assets and other items by reportable segment

Americas

The Basis of our Value Creation

20. SEGMENT INFORMATION(a) Overview of reportable segments

90Year ended
December 31, 2020

Intercompany sales andtransfers between
segments

Year ended
December 31, 2019

Growth Strategies for Value Creation

Depreciation andamortization

Depreciation andamortization

Americas

Other items

Future minimum lease payments subsequent to December 31, 2020 for operating lease transactions are summarized as follows:

Total sales

INPEX’s Vision and Value Creation

The changes in the carrying amount of goodwill for the years ended December 31, 2019 and 2020 are as follows:*1 Adjustments include elimination of inter-segment transactions and corporate incomes, expenses and assets that are not allocated to a reportablesegment.
*2 Segment income is reconciled with operating income on the consolidated statement of income.

(d) Products and service information(Sales to third parties)
Millions of yen

Crude oil
Natural gas (excluding LPG)
LPG
Other
Total

Thousands of U.S. dollars

2019/122020/122020/12¥ 764,039
219,970
3,128
12,867¥1,000,005¥505,517
247,854
2,737
14,937¥771,046$4,883,278
2,394,261
26,439144,290$7,448,280

INPEX CORPORATION Annual Report 202091

Year ended December 31, 2020
Millions of yen

Japan
Asia & Oceania (excluding China)
China
Other
Total

Thousands of U.S. dollars

2019/122020/122020/12¥ 461,267
349,430
58,710130,597¥1,000,005¥350,811
224,183
90,335
105,716¥771,046$3,388,823
2,165,600
872,633
1,021,213

Name ofrelatedparty

Location

CapitalNature of operations
investment

Votinginterest

Amounts
Description ofTransaction
Thousands
the businessMillions ofdetailof U.S.
relationshipyendollars

Loans offunds*1¥ 84,713

Millions of yen

Thousands of U.S. dollars$ 351,603

Long-term
loans
receivable*2

906,852

8,760,162

Current
assets,other(interest
receivable)

2020/122020/12¥ 235,211
1,751,009¥ 224,534
1,573,641

United Arab Emirates
Other
Total

247,419
41,732¥2,275,372

251,290
20,317¥2,069,783$ 2,168,991
15,201,323
2,427,453
196,261$19,994,039

Western
Australia,
Australia

Indirectly
66.25%

Capitalsubscription

1,043

10,075

10,431

100,763——¥    136$    1,313

Millions of yen

Shell International Eastern Trading Company
Ichthys LNG Pty Ltd
JXTG Nippon Oil & Energy Corporation

Ichthys LNG Pty Ltd¥124,787
110,689¥108,496

Middle East & Africa

Millions of yen

Thousands of U.S. dollars

Segment$1,173,889

Asia & Oceania

Asia & Oceania
Middle East & Africa

Millions of yen

2019/12Japan
Asia & Oceania
Americas
Total

¥796
—
—
¥796

Thousands of U.S. dollars

2020/122020/12¥—
138,01151,929$—
1,333,181
501,632¥189,940$1,834,814(1) Transactions with non-consolidated subsidiaries and affiliated companies
Year ended December 31, 2019

Western
Australia,
Australia

Description of
the business
relationshipTransaction
detailLoans offunds*1

Indirectly
66.25%

Capitalsubscription

Amounts
Millions of yen¥113,612

Title of accountAmounts
Millions of yen

INPEX CORPORATION Annual Report 2020—$   58,954

Current
assets,other(accruedrevenue)¥  6,103

Name ofrelatedparty

Location

CapitalNature of operations
investment

Japan Oil,
Support for
Gas and¥1,069,100 exploration and
MetalsMinato-ku, Tokyo
million*1 developmen of oil
National
and others
Corporation

Votinginterest

None

Amounts
Descriptionof theTransaction
Thousands
Millions ofbusinessdetailof U.S.
yen
relationshipdollars

Acceptanceof debt
guarantees

Acceptanceof debt
guarantees*2

Payment ofguarantee
fees*2¥132,764¥  1,415

Title ofaccount

Amounts
Thousands
Millions ofof U.S.
yen
dollars$1,282,496

—

¥—

$—

$   13,668

Current
liabilities,
other(accrued
expenses)¥333$3,216(b) Note related to the parent company or significant affiliated companies

The significant affiliated company for the years ended December 31, 2019 and 2020 is Ichthys LNG Pty Ltd. The summary of its financial information is as follows:
Millions of yen

Long-term
loans
receivable¥713,837

Sales of finishedgoods*2

110,689

Accounts
receivable—
trade

12,344

Guarantee of
liabilities*3¥598,676—¥—*1 The Company determines the interest rate on loans of funds based on market interest rates in a reasonable and appropriate manner.
*2 All transactions were conducted under general transactional conditions, which are the same as those used in transactions with independent third parties.
*3 Guarantee of liabilities are for securing loans from financial institutions. In addition, “Amounts” are guaranteed balance by the Company as of December 31, 2019.

92

3,007,979

Performance and Financial Overview(a) Related Party Transactions

Ichthys
LNG
Pty Ltd

311,386*1 The amount of “Capital investment” is as of September 30, 2020.
*2 Japan Oil, Gas and Metals National Corporation guarantees securing loans from financial institutions, and receives guarantee fees based on the amount of the guarantees. In addition, “Amounts” of “Acceptance of debt guarantees” are guaranteed balances by Japan Oil, Gas and Metals National Corporation as of December 31,
2020.

There are the following related party transactions for the years ended December 31, 2019 and 2020.

Transportation,liquefaction andsales of oil and$4,506,860
natural gas throughthousandpipeline in WA-50-L
block in offshore
Western Australia

Guarantee
ofliabilities*4(2) Transactions with fellow subsidiaries and other affiliated companies
Year ended December 31, 2019
None

21. RELATED PARTY TRANSACTIONSCapitalNature of operations Voting interest
investment

Accounts
1,173,889 receivable—
tradeYear ended December 31, 2020(g) Information on impairment loss from fixed assets

Location

121,521*1 The Company determines the interest rate on loans of funds based on market interest rates in a reasonable and appropriate manner.
The interest rate on certain loans of funds is zero.
*2 Long-term loans receivable includes increases by purchases of long-term loans receivable in the amount of ¥201,769million ($1,949,082 thousand).
*3 All transactions were conducted under general transactional conditions, which are the same as those used in transactions with independent third parties.
*4 Guarantee of liabilities are for securing loans from financial institutions, and the Company receives guarantee commissions based on the amount of the guarantees. In
addition, “Amounts” of “Guarantee of liabilities” are guaranteed balances by the Company as of December 31, 2020.

Segment¥121,521

Sales offinished
goods*3

306,124

The Basis of our Value Creation

Year ended December 31, 2020

31,690

Guarantee
commission
received*4(f) Information by major customer(Sales to major customer)
Year ended December 31, 2019

Interest
Income*1

Growth Strategies for Value Creation

2019/12Japan
Australia

Ichthys
LNG
Pty Ltd

Transportation,liquefaction andsales of oil and$4,506,860
natural gas throughthousandpipeline in WA-50-L
block in offshore
Western Australia

Amounts
Thousandsof U.S.
dollars

Millions ofyen¥ 36,398$7,448,280(Tangible fixed assets)

Title ofaccount

Current
assets,other(short-termloans$ 818,324
receivable)*Sales are classified by country or region based on the geographical location of customers.

Name ofrelatedparty

INPEX’s Vision and Value Creation(e) Geographical information(Sales)Thousands of U.S. dollars

Total current assets
Total fixed assets
Total current liabilities
Total long-term liabilities
Total net assets

2019/12¥ 130,424
3,720,066
325,927
3,101,152
423,4102020/12¥ 143,769
3,457,635
331,477
2,941,567
328,359

2020/12$ 1,388,804
33,400,647
3,202,057
28,415,446
3,171,937

Net sales
Net income (loss) before income taxes
Net income (loss)

370,598(35,863)¥ (46,609)

417,581(31,983)¥ (39,566)

4,033,819(308,954)$ (382,206)

INPEX CORPORATION Annual Report 202093

Independent Auditor’s Report

The Board of Directors
INPEX CORPORATION
OpinionIn our opinion, the accompanying consolidated financial statements present fairly, in all material respects, theconsolidated financial position of the Group as at December 31, 2020, and its consolidated financial performanceand its consolidated cash flows for the year then ended in accordance with accounting principles generally acceptedin Japan.
Basis for Opinion

Responsibilities of Management, the Audit and Supervisory Board Member and the Audit and Supervisory
Board for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements inaccordance with accounting principles generally accepted in Japan, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability tocontinue as a going concern and disclosing, as required by accounting principles generally accepted in Japan,
matters related to going concern.
The Audit and Supervisory Board Member and the Audit and Supervisory Board are responsible for overseeing theGroup’s financial reporting process.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including thedisclosures, and whether the consolidated financial statements represent the underlying transactions and events ina manner that achieves fair presentation in accordance with accounting principles generally accepted in Japan.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or businessactivities within the Group to express an opinion on the consolidated financial statements. We are responsible forthe direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
We communicate with the Audit and Supervisory Board Member and the Audit and Supervisory Board regarding,among other matters, the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
We also provide the Audit and Supervisory Board Member and the Audit and Supervisory Board with a statementthat we have complied with the ethical requirements regarding independence that are relevant to our audit of thefinancial statements in Japan, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Group which is required to bedisclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

The Basis of our Value Creation

We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Group in accordance with the ethicalrequirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may castsignificant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Group to cease to continue as a going concern.

Growth Strategies for Value Creation

We have audited the accompanying consolidated financial statements of INPEX CORPORATION and its
consolidated subsidiaries (the Group), which comprise the consolidated balance sheet as at December 31, 2020,
and the consolidated statements of income, comprehensive income, changes in net assets, and cash flows for theyear then ended, and notes to the consolidated financial statements.

INPEX’s Vision and Value Creation

Independent Auditor’s Report

Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
December 31, 2020, are presented solely for convenience. Our audit also included the translation of Japanese yenamounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in
Note 3 to the consolidated financial statements.

Ernst & Young ShinNihon LLC
Tokyo, Japan
Performance and Financial Overview

March 25, 2021

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes ouropinion. Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis ofthese consolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due tofraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion.
• Consider internal control relevant to the audit in order to design audit procedures that are appropriate in thecircumstances for our risk assessments, while the purpose of the audit of the consolidated financial statements is
not expressing an opinion on the effectiveness of the Group’s internal control.

/s/ Hiroaki Kosugi
Designated Engagement Partner
Certified Public Accountant/s/ Satoshi Takahashi
Designated Engagement Partner
Certified Public Accountant/s/ Takeshi Yoshida
Designated Engagement Partner
Certified Public Accountant• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates andrelated disclosures made by management.

94

INPEX CORPORATION Annual Report 2020

INPEX CORPORATION Annual Report 202095

Subsidiaries and Affiliates
INPEX’s Vision and Value Creation

As of December 31, 2020

Consolidated Subsidiaries
Company name

Voting rights
held by us (%)*2

Main business100.00%Exploration, development, production and sales of oil
and natural gas in the Lucius Oil Field and others, inthe U.S. Gulf of Mexico

1,043,488(Thousands ofCanadian dollars)

45.09%

Exploration, development, production and sales ofnatural gas in the shale gas blocks of the Horn River,
Cordova and Liard basins in British Columbia, Canada

INPEX Eagle Ford, LLC—

100.00%Exploration, development, production and sales of oilin the Eagle Ford shale play in Texas, US

Teiseki Pipeline Co., Ltd.

100

100.00%Natural gas transportation, pipeline operation, maintenance and management

INPEX DLNGPL PTY Ltd

42,001(Thousands of
U.S. dollars)

100.00%Investment in Darwin LNG Pty Ltd, which constructs
and operates the undersea pipeline and LNG plantconnecting the Bayu Undan Gas-Condensate Field andDarwin (Australia)

INPEX BTC Pipeline, Ltd.

63,800(Thousands of
U.S. dollars)

100.00%Investment in the pipeline construction and management business that connects Baku (Azerbaijan), Tbilisi(Georgia) and Ceyhan (Turkey)

INPEX Trading, Ltd.

50

100.00%

Sales, agency and brokerage of crude oil and market
research and sales planning in connection with oil andnatural gas sales

Saitama Gas Co., Ltd.

60

62.67%(13.17%)

City gas sales

INPEX Geothermal Sarulla, Ltd.

10100.00%

Supply of business capital, etc. to geothermal power
project in Sarulla Geothermal Field, Indonesia

4,606,000(Thousands of
U.S. dollars)

100.00%

The Group’s intercompany finance operations andsupport for financial administration of projects

Issued capital(Millions of yen)*1

Voting rights
held by us (%)*2

Main business

Exploration, development, production and sales of oil
and natural gas in the PSC TL-SO-T 19-12 Block in EastTimor

INPEX Americas, Inc.

INPEX Alpha, Ltd.

8,014

100.00%Exploration, development, production and sales of oil
and natural gas in the WA-35-L Block and others,
Australia

INPEX Gas British Columbia Ltd.

INPEX Browse, Ltd.

426,640

100.00%Financing for oil and natural gas exploration, development, production and sales in the WA-285-P Block andothers, Australia

9,681,023(Thousands of
U.S. dollars)

100.00%(100.00%)

Financing for oil and natural gas exploration, development, production and sales and construction and operation of the LNG plant for the Ichthys LNG project,
Australia

804,456(Thousands of
U.S. dollars)

100.00%(100.00%)

Exploration, development, production and sales of oil
and natural gas in the Ichthys Gas-Condensate Field(WA-50-L/ WA-51-L), Australia

420,150(Thousands of
U.S. dollars)

100.00%(100.00%)

Exploration of oil and natural gas in the WA-285-P
Block and others, Australia

64,08251.93%

Exploration and development of oil and natural gas in
the Masela Block in the Arafura Sea, Indonesia

1,097

100.00%Exploration, development, production and sales of oil
and natural gas in the Sebuku Block in the Makassar
Strait, Indonesia

1,011,000(Thousands of
U.S. dollars)

100.00%Exploration and development, production and sales ofoil and natural gas in the Prelude Gas Field (WA-44-L)
and others, Australia

INPEX FINANCIAL SERVICESSINGAPORE PTE. LTD.

INPEX Babar Selaru, Ltd.

10

51.01%

Exploration of oil and natural gas in the Babar Selaru
Block in the eastern sea area, Indonesia

33 other subsidiaries

Teikoku Oil (Con Son) Co., Ltd.

10100.00%Exploration and development, production and sales ofoil and natural gas in Blocks 05-1b/ 05-1c in offshore
southern Vietnam

Equity-method affiliates

53,59451.00%

Exploration, development, production and sales of oilin the ACG Oil Fields, Azerbaijan

Company name

INPEX Browse E&P Pty Ltd
INPEX Masela, Ltd.
INPEX South Makassar, Ltd.

INPEX Oil & Gas Australia Pty Ltd

INPEX Southwest Caspian Sea, Ltd.

100,469

51.00%

Japan Oil Development Co., Ltd.

5,532

100.00%Exploration, development, production and sales of oilin the Upper Zakum, Satah and Umm Al Dalkh oil
fields, Offshore Abu Dhabi, United Arab Emirates

338,601(Thousands of
U.S. dollars)

44.00%

Exploration, development, production and sales ofnatural gas in the Berau Block and the Tangguh LNG
Project, West Papua province, Indonesia

PT Medco Geopower Sarulla

143,003(Thousands of
U.S. dollars)

49.00%(49.00%)

Supply of business capital, etc. to geothermal power
project in Sarulla Geothermal Field, Indonesia

Ichthys LNG Pty Ltd

4,506,860(Thousands of
U.S. dollars)

66.25%(66.25%)Laying and maintenance of undersea pipeline fromthe Ichthys Gas-Condensate Field to the Darwin
Onshore LNG Plant in Australia, construction andoperation of the LNG plant and sales of LNG, LPG
and condensate.

7

25.00%

Supply of business capital for exploration, development, production and sales of oil in Zapadno-Yaraktinsky and Bolshetirsky blocks, Russia

18(Thousands ofeuros)

49.99%(49.99%)

Exploration, development, production and sales ofoil in Block 14, Offshore Angola

600,000(Thousands of
U.S. dollars)

100.00%JODCO Onshore Limited

111(Thousands of
U.S. dollars)

65.76%

Exploration, development, production and sales of oil
in ADCO Block in onshore Abu Dhabi, United ArabEmirates

JODCO Exploration Limited

50(Thousands of
U.S. dollars)

100.00%Exploration of oil in onshore Block 4 in Abu Dhabi,
United Arab Emirates

10100.00%Exploration, development, production and sales of oilin the Offshore D.R. Congo Block

Angola Block 14 B.V.

265,600(Thousands of
U.S. dollars)

100.00%Investment in oil exploration, development, production
and sales in Block 14, Offshore Angola

15 other equity-method affiliates

100.00%Investment in exploration, development, production
and sale of natural gas in the Copa Macoya Block andexploration, development, production and sale of oilin the Guarico Oriental Block, Bolivarian Republic ofVenezuela

JODCO Lower Zakum Limited

Teikoku Oil (D.R. Congo) Co., Ltd.
INPEX Angola Block 14 Ltd.

Teikoku Oil & Gas Venezuela, C.A.

INPEX CORPORATION Annual Report 2020

16.2
(Bolivars)

Exploration, development, production and sales of oilin the Lower Zakum Oil Field Offshore Abu Dhabi,
United Arab Emirates

MI Berau B.V.

Japan South Sakha Oil Co., Ltd.

Performance and Financial Overview

INPEX North Caspian Sea, Ltd.

Exploration, development, production and sales of oilin the Offshore North Caspian Sea Block, Kazakhstan

The Basis of our Value Creation

19,793(Thousands of
U.S. dollars)

100.00%Growth Strategies for Value Creation

Main business

4,600

INPEX Ichthys Pty Ltd

Issued capital(Millions of yen)*1

Voting rights
held by us (%)*2

Company name

INPEX Sahul, Ltd.

INPEX Holdings Australia Pty Ltd

96

Issued capital(Millions of yen)*1*1 Values in the column labeled “Issued capital (Millions of yen)” are rounded to the nearest unit.
*2 Values in parentheses in the column labeled “Voting rights held by us (%)” indicate the ratio of indirectly held voting rights. These values
are included in the total.

INPEX CORPORATION Annual Report 202097Business Risks

1. CHARACTERISTICS OF AND RISKS ASSOCIATED WITH THE OIL AND NATURAL GASDEVELOPMENT BUSINESS(1) Risk of disasters, accidents, system failures, etc.

INPEX CORPORATION Annual Report 2020

Payment of compensation is ordinarily necessary to acquire participating interests. Also, surveying and exploratory drilling expenses (exploration expenses) become necessary at the time of
exploration activities for the purpose of discovering resources.
When resources are discovered, it is necessary to further invest in
substantial development expenses according to various conditions, including the size of the recoverable reserves, development
costs and details of agreements with oil-producing countries (including gas-producing countries; hereinafter the same shallapply).
There is, however, no guarantee of discovering resources ona scale that makes development and production feasible. The
probability of such discoveries is considerably low despite various
technological advances in recent years, and even when resources
are discovered the scale of the reserves does not necessarily
make commercial production feasible. For this reason, the Group
conservatively recognizes expenses related to exploration investment in our consolidated financial statements. The Group maintains financial soundness by booking 100% as expenses in thecase of concession agreements (including mining rights awardedin Japan as well as permits, licenses and leases awarded overseas)
and by booking 100% of exploration project investment as allowances in the case of production sharing agreements. In addition,
if there are impossibilities of recovery of investment in a development project, we also book the corresponding amount of investment in the development project as allowances while considering
the recovery possibility of each project.
To increase recoverable reserve and production volumes, theGroup plans to always take an interest in promising properties
and plans to continue exploration investment. At the same time,
we plan to invest in development projects, including the acquisition of interests in discovered undeveloped fields and producing
fields, so as to maintain an overall balance between assets at the
exploration, development, and production stages.
Although exploration and development (including the acquisition of interests) are necessary to secure the reserves essential to
the Group’s future sustainable business development, each type(4) Contract expiration dates
Expiration dates are often stipulated in the agreements related toparticipating interests, which form the basis of the Group’s overseas business activities. Should an agreement in which an expiration date is stipulated not be extended, re-extended or renewed,
or should the terms and conditions be less favorable (including
a reduction in the proportion of the Group’s interest) than thoseexisting at the time of extension, re-extension or renewal, there
could be an adverse effect on the Group’s results. INPEX Group
policy to work with our business partners toward the extension,
re-extension or renewal of these agreements, should an existing
agreement not be extended, re-extended or renewed as a resultof agreement negotiations with the national petroleum companyof an oil-producing country, or in the event of agreement terms
and conditions (including a reduction in the Group’s participatinginterest) that are more disadvantageous than the situation at thetime of the extension, re-extension or renewal, this could have an
adverse effect on the Group’s business or results. Even should theagreements stipulating expiration dates be extended, re-extended or renewed, we anticipate that the remaining recoverable reserves at that time will have decreased due to production
developments. Although the Group is striving to acquire intereststhat can substitute these properties, failure to acquire participating interests in oil and gas fields to fully substitute for these properties could have an adverse effect on the Group’s results.
In addition, the period for exploration in oil and gas fields currently under exploration is fixed by contracts, and in the case of
fields where oil and/or gas reserves are found that are deemed tobe commercialized, and the Company is unable to decide on thetransition to the development stage by the expiration of the current contract, efforts will be made through negotiations with thegovernment of the oil- or gas-producing country in question tohave the periods extended. However, there remains the possibility that such negotiations may not be successfully concluded, inwhich event the Company would be forced to withdraw from operations in the oil or gas field concerned. Also, as a rule, when
there has been a major breach of contract on the part of one party, it is customary for the other party to have the right to cancel
the agreement before the expiration date. The agreements forproperties in these principal geographical business areas containsimilar provisions. The Group has never experienced early cancellation of an agreement due to breach of contract, and we do not
anticipate such an occurrence in the future. Nevertheless, a major
breach of contract on the part of a party to an agreement could(5) Crude oil, condensate, LPG and natural gas
reserves
1) Proved reserves

INPEX CORPORATION (the “Company”) commissioned DeGolyer and MacNaughton, an independent petroleum engineering
consultant in the United States, to assess the main proved reserves of the Group of which projects with a significant amount of
future development investment might materially affect future performance. An assessment of other projects was undertaken by theCompany. The definition of proved reserves is based on the U.S.
Securities and Exchange Commission’s (SEC) Regulation S-X, Rule4-10(a), which is widely known among U.S. investors. Regardlessof whether the deterministic approach or probabilistic approachis used in evaluation, proved oil and gas reserves are estimatedquantities that geological and engineering data demonstrate withreasonable certainty to be recoverable from known reservoirs under existing economic and operating conditions, from the date ofevaluation through to the expiration date of the agreement granting operating rights (or in the event of evidence with a reasonablecertainty of agreement, extension through to the expiration of the
projected extension period). For definition as “proved reserves,”
operators must have a reasonable degree of certainty that the recovery of hydrocarbons has commenced or that the project willcommence within an acceptable period of time. This definition is
widely regarded as being conservative. Nevertheless, the strictness of the definition does not imply any guarantee of the production of total reserves during a future production period. In thiscontext, when probabilistic methods are employed, there should
be at least a 90% probability that the quantities actually recovered
will equal or exceed the sum of estimated proved reserves.
For further details on proved reserves of crude oil, condensate, LPG and natural gas held by the Group, including equity-method, affiliates accounted please see the section “Oil and
Gas Reserves and Production Volume” on P. 107.

Performance and Financial Overview

98(2) Risk of failure in exploration, development or
production

The Group engages in stable production of crude oil and natural
gas in the Ichthys gas-condensate field (Australia), the on shore
and offshore Abu Dhabi oil fields (United Arab Emirates), theMinami Nagaoka Gas Field (Japan) and so on. The areas in which
the Group operates are spread broadly throughout Asia-Oceania(particularly Japan, Indonesia and Australia), the Middle East andAfrica, Eurasia including the Caspian Sea area and the Americas.
For fiscal 2020, however, the Asia and Oceania region accounted
for about 44% of the Group’s production volume and the Middle
East and Africa region accounted for about 39%, with these tworegions making up the vast majority of the Group’s operations.
The Group currently relies heavily on specific geographical areas and assets for its production volume, and the occurrence of
operational issues at these assets could have an adverse effect on
the Group’s operational results.

The Basis of our Value Creation

Oil and natural gas development entails the risk that operational
accidents and disasters may occur in the process of exploration,
development, production and transportation. Various information
systems are used in operations. While safety measures are inplace for these systems, there is the risk that operations may besuspended due to unforeseen failures of these systems caused byevents such as natural disasters and cyberattacks. Should such an
unforeseen failure of information systems, or an accident, disasteror other such incident occur, there is the risk that costs may be incurred, excluding compensation covered by insurance, due to infrastructural damage, as well as the risk of a major accident ordisaster involving loss of life. In addition, a cost for recovery or
opportunity loss from the interruption of operations could occur.
Furthermore, the spread of infectious diseases such as
COVID-19 may lead to a shortage of employees required for operations and other necessities, difficulty in procuring materials,
equipment and services as well as transportation of produced
goods, instructions or orders from the governments of oil-producing countries to suspend operations, changes in the policies ofpartners in a joint business and other developments. Such events
may fully or partly suspend or delay operations.
For its domestic natural gas business, the Company has continued to procure natural gas regasified from imported LNG as
source gas since January 2010. Furthermore, the Company has
procured imported LNG as source gas in connection with its
Naoetsu LNG Terminal from August 2013. An inability to procure
natural gas regasified from imported LNG and other imported
gas as source gas due to issues concerning suppliers or the Company’s Naoetsu LNG Terminal, or compromised pipeline operations due to accidents or disasters along the pipeline network,
may interfere with the Company’s ability to supply its customers.
This could in turn have an adverse effect on the Company’s domestic natural gas business.
With regard to environmental problems, there is a possibilityof soil contamination, air pollution, and freshwater and seawaterpollution. The Group has established a “Health, Safety and Environment Policy,” and as a matter of course abides by the environmental laws, regulations, and standards of the countries in which
we operate and give due consideration to the environment in the
conduct of business, based on our independent guidelines. In theevent of an operating accident or disaster which impacts the environment, there is the possibility of incurring a response or costburden for recovery from that incident, of incurring obligation of
payment for procedural costs, compensation or other cost related
to the start of civil, criminal or government procedures, or of incurring loss from the interruption of operations. Furthermore, inthe event of changes to or the strengthening of the environmental laws, regulations, and standards (including support measures
for the promotion of new, renewable energies) of the countries inwhich we operate, it may be necessary for the Group to devise
additional measures with an associated cost burden and it could
affect on the financial results of the Group.

The Company strives to prevent accidents and incidents fromhappening to avoid these risks of disasters, accidents, system failures and other developments from materializing. However, risks
are always present, and if they materialize, they may have a significantly adverse effect on the Group’s results.
Although the Group maintains insurance against loss or damage in the natural course of its operations to a reasonable extent,
insurance may not cover all damages. Also, such accidents or issues could result in administrative sanctions or damage theGroup’s credibility and reputation as an oil and natural gas development company, and could therefore have an adverse effect on
future business activities.

(3) Dependence on specific geographical areas
or assets for production volume

result in cancellation of an agreement before the expiration date.
And in the overseas natural gas development and production
activities, in many cases we are selling and supplying gas basedon long-term sales and supply contracts in which expiration dates
are stipulated. We plan to make efforts with partners to extend or
re-extend the expiration date before the deadline stipulated inthese contracts. Nevertheless, inability to extend the contracts, orthe occurrence of cases in which extension is made but sales andsupply volumes are reduced, could have an adverse effect on theGroup’s business or results.

Growth Strategies for Value Creation

I. MAJOR BUSINESS RISKS

of investment involves technological and economic risks, andfailed exploration or development could have an adverse effecton the results of the Group’s operations.

INPEX’s Vision and Value Creation

The following is a list of key items that can be considered potential risk factors relating to the business of INPEX CORPORATION, its subsidiaries and affiliates (the “Group”). From the standpoint of information disclosure to investors and shareholders, we proactively disclose mattersthat are not necessarily the business risks but that can be considered to have important effects on the investment decisions of investors. The
following discussion does not completely cover all business risks relating to the Group’s businesses.
Unless stated otherwise, forward-looking statements in the discussion are the judgment of the Group as of March 26, 2021 and are subject to change after such date due to various factors, including changes in social and economic circumstances.

2) Possibility of changes in reserves

A reserve evaluation depends on the available geological and engineering data from oil and gas reservoirs, the maturity of development plans and a considerable number of assumptions, factors
and variables including economic conditions as of the date suchan estimate is made. Reserves may be revised in the future on thebasis of geological and engineering data as well as development
plans and information relating to changes in economic and otherconditions made newly available through progress in production
and operations. As a result, there is a possibility that reserves will
be restated upwards or downwards. As to the reserves undera PSC, not only production, but also oil and gas prices, investments, recovery of investments due to contractual conditions andremuneration fees may affect the economic entitlement. This may
cause reserves to increase or decrease. In this way, the assessedvalue of reserves could fluctuate because of various data, assumptions and changes of definition.

INPEX CORPORATION Annual Report 202099

Considerable time and expense is required for exploration activities. Even when promising resources are discovered through exploration, substantial expenses including production facility
construction costs, and an extended period of time, are necessary
at the development stage leading up to production. For this reason, a long period of 10 years or more is required from the timeof exploration and development investment until the recovery offunds through production and sales. In particular, the large-scale
LNG projects require a very large amount of investment, and thefinancing of these projects could be impacted by changes in theeconomic and financial environment. Following the discovery of
resources, a delay in the development schedule or the loss of theeconomic viability of the properties during the development process leading up to production and the commencement of sales
could have an adverse effect on the Group’s operational results.
Such delays or losses may occur due to changes in the businessenvironment including a delay in the acquisition or modificationof government approvals, the occurrence of unanticipated problems related to geological conditions, fluctuations in the price ofoil or gas, fluctuations in foreign exchange rates, or escalating
prices of equipment and materials. In the case of LNG projects,
such delays or losses may occur due to an inability to complete
such procedural requirements as FID owing to the lack of any
long-term contractual agreement with prospective purchasers
with respect to production.

(9) Risk in relation to mine abandonment
The Group books in its accounts, as an asset retirement obligation, the estimated present value of costs related to mine abandonment that will become necessary after finishing operation andproduction in oil and gas production facilities and the like in accordance with agreements with the authorities of oil-producing
countries, applicable laws and regulations and the like. If it is later
found that the estimated present value of those costs falls shortdue to a change in the procedures used for mine abandonment,a rise in expenses for procuring drilling materials and equipment
or any other reason, the Group will be required to increase theamount of that asset retirement obligation, which could adversely
affect the financial condition and results of operations of theGroup.

(2) The effect of fluctuations in exchange rates
on financial results
As most of the Group’s business consists of E&P conducted overseas, associated revenues (sales) and expenditures (costs) are denominated in foreign currencies (primarily in U.S. dollars), and(1) Effects of fluctuations in crude oil prices andnatural gas prices on financial results
Crude oil prices and natural gas prices at our overseas businesses
are largely determined by international market conditions. In addition, these prices fluctuate significantly due to the influence ofa variety of factors including global and regional supply and demand (including a growing downward pressure on demand dueto the shift towards a net zero carbon society), trends and conditions in the global economy (including the impact of the contraction of economic activity due to the global pandemic) andfinancial markets as well as trends in the policies of oil-producing

100

INPEX CORPORATION Annual Report 2020

countries and agreements between oil-producing countries on
production volume and other matters. The vast majority of thesefactors are beyond the control of the Company. In this regard,
INPEX is not in a position to accurately predict movements in future crude oil and natural gas prices. The Group’s sales and profits are subject to the effects of such price fluctuations.
A fluctuation of US$1 in the price of crude oil is expected to havea ¥6.6 billion impact on the Group for the year ending December
31, 2021, as estimated at the beginning of the fiscal period. Sucheffects are highly complex and are caused by the following
factors.

(3) The effect of fluctuations in interest rates on
financial results
The Group raises some of the funds necessary for exploration anddevelopment operations through borrowing. Much of these borrowings are with variable-rates, long term borrowings based on
the U.S. dollar six-month LIBOR rate. Accordingly, the Company’s
profits are subject to the influence of fluctuations in U.S. dollar interest rates. Furthermore, although the Group has devised methods to reduce a portion of interest rate risk, these methods do
not cover all risks of interest rate fluctuation incurred by ourGroup and do not entirely remove the effect of fluctuations in interest rates.

3. CLIMATE CHANGE RISKIn order to achieve the goals of the Paris Agreement and amid
growing interest in addressing climate change on a global scale,efforts are being made worldwide to reduce greenhouse gas(GHG) emissions, which are recognized as the cause of climatechange and global warming. The Group identifies, assesses andmanages climate change risks in line with the recommendationsof the Task Force on Climate-related Financial Disclosures (TCFD),
and specifically recognizes the following risks. The potential forthese climate change risks materializing is expected to grow overthe medium to long term, and if they do, they could have an adverse effect on the Group’s performance.

(1) Policy/regulatory risk

2. EFFECTS OF FLUCTUATIONS IN CRUDE OIL PRICES, NATURAL GAS PRICES, FOREIGNEXCHANGE AND INTEREST RATES ON FINANCIAL RESULTS

profit and loss is subject to the effects of the foreign exchange
market. In the event of appreciation in the value of the yen,
yen-denominated sales and profits decrease. Conversely, in theevent of depreciation in the value of the yen, yen-denominatedsales and profits increase.
On the other hand, when borrowing necessary funds, theCompany borrows in foreign currencies. In the event of appreciation in the value of the yen, a foreign exchange gain on foreign-currency denominated borrowings is recorded as a result offiscal year-end conversion; in the event of depreciation in the value of the yen, a foreign exchange loss is incurred. For this reason,
the exchange risk associated with the above business is diminished and the impact of fluctuations in exchange rates on profit
and loss tends to be mitigated. A ¥1 appreciation/depreciation
against the U.S. dollar is expected to have a ¥2 billion impact on
the Group for the year ending December 31, 2021. Moreover, although the Company is taking measures to reduce a portion of
the risks associated with movements in foreign currency exchange
rates, these measures by no means cover all possible risks. As
a result, the impact of fluctuations in foreign currency exchange
rates cannot be completely eliminated.

In the event that the countries and regions where the Group operates strengthen climate change actions based on the Paris
Agreement or other accords, making changes or enhancements
to environmental laws, regulations or standards, including carbon
pricing systems such as emissions trading and carbon taxes, theGroup would be required to implement additional measures and,in turn, incur financial commitments that could have an adverse
effect on the Group’s performance.

(2) Technical risk
If demand for the Group’s oil and natural gas products declines asa result of accelerated progress in low-carbon related technologies and increased price competitiveness of low-carbon products,
this may have an adverse effect on the Group’s business andperformance.

Performance and Financial Overview

In the oil and natural gas development business, as previously
mentioned, several companies often engage in joint business forthe purpose of dispersion of risk and financial burden. In suchcases, the partners generally enter into a joint operating agreement among themselves to decide on the decision-making procedure for execution of the joint business, or to decide on an
operator that conducts business on their behalf. A company thatis a partner in one property in which the Group is engaged injoint business may become a competitor in the acquisition of other participating interests, even though the relationship with thepartner may be good.

(8) In the oil and natural gas development
business the period from exploration to sales
is highly capital intensive and funds cannot
be recovered for a long time1) Although a majority of natural gas selling prices in overseas
businesses are linked to crude oil prices, they are not in direct
proportion to crude oil prices.
2) Because sales and profits are determined on the basis of crude
oil prices and natural gas prices at the time sales are booked,
actual crude oil transaction prices and the average oil priceduring the accounting period do not necessarily correspond.
Moreover, although the Company is taking measures to reducea portion of the risks associated with crude oil price fluctuations,these measures by no means cover all possible risks. As a result,the impact of fluctuations in crude oil prices cannot be completely eliminated.
Since the natural gas business in Japan uses domestically produced natural gas and imported LNG as feedstock, changes in
the market price for LNG have an effect on feedstock prices andsales prices. There is also the possibility that changes in the competitive environment associated with electric power and gas system reforms will have an effect on natural gas sales prices andsales volumes.
Also, should the recovery of an amount invested in a businessasset held by the Group be no longer expected—due to a decrease in profitability associated with changes in the business environment on the basis of changes in future market conditions—since the Group would reduce that business asset’s book value toreflect the level of recoverability and the amount of that reduction
would be deemed impairment loss, there is the possibility that
there could be an adverse effect on the Group’s results ofoperations.

The Basis of our Value Creation(7) Project partners

In undertaking the joint business, participants in principle beara financial responsibility in proportion to their interest share. Any
inability of a joint business partner to fulfill this financial responsibility may adversely affect the project.

Growth Strategies for Value Creation

In the oil and natural gas development business, companies frequently form business partnerships for the purpose of the dispersion of risk and financial burden. In such partnerships, one of thecompanies becomes the operator, which performs the actual
work and bears the responsibility for operations on behalf of thepartners. The companies other than the operator, as non-operators, participate in the business by providing a predeterminedamount of funds and either carefully examining the explorationand development plan devised and implemented by the operator, or participating in some operations.
The Group intends to actively pursue operator projects, focusing on the large-scale Ichthys LNG and other projects taking into
consideration the effective application of business resources aswell as the balance between operator and non-operator projects,
based on the Group’s knowhow and technical capability, which
has been acquired through considerable operational experienceat each of the exploration, development and production stages.
The Company has significant expertise as an operator in the development and production of crude oil and natural gas both inJapan and overseas as well as a wealth of know-how and knowledge accumulated over many years as a participant in LNG andother projects in such countries as Indonesia and Australia. In addition, we believe that by utilizing the services of specialized subcontractors and highly experienced external consultants,
a practice similar to foreign oil companies including the majors,
it will be possible to execute business appropriately as an operator including LNG projects.
Engaging in project coordination as an operator contributes
to the expansion of opportunities in acreage acquisition throughenhancement of technical capabilities and greater presence inoil-producing countries and the industry. At the same time, there
are risks such as constraints on the recruitment of personnel withspecialized operational skills and an increase in financial commitments. Inability to adequately cope with such risks could have an
adverse effect on the Group’s operational results.

INPEX’s Vision and Value Creation(6) Operatorship(3) Market risk
If investors and financial institutions place more importance thanin the past on direct and indirect GHG emissions from the Group’sbusiness as an evaluation item for climate change risk in investment and financing, the Group’s financing and its related terms
and conditions may be adversely affected.

(4) Physical risk
Acute risks due to extreme meteorological phenomena such as
tropical cyclones and floods, and chronic risks such as rises in average temperature and sea levels over the long term may adversely affect the operations of the Group’s facilities.

INPEX CORPORATION Annual Report 2020

101

INPEX’s Vision and Value Creation

II. OTHER BUSINESS RISKS
4. OVERSEAS BUSINESS ACTIVITIES AND COUNTRY RISK102

INPEX CORPORATION Annual Report 2020

Although we strive to manage risks and mitigate their impact
by taking these countermeasures, they by no means cover all possible risks. As a result, the impact from individual events cannot
be completely eliminated.

(1) Details of production sharing contracts
The Group has entered into production sharing contracts withcountries including Indonesia and Caspian Sea area, and therefore holds numerous participating interests in those regions.
Production sharing contracts are agreements by which one orseveral oil companies serve as contractors that undertake at theirown expense exploration and development work on behalf of thegovernments of oil-producing countries or national oil companies
and receive production from the projects as cost recovery andcompensation. That is to say, when exploration and development
work results in the production of oil or natural gas, the contractors
recover the exploration and development costs they incurred bymeans of a share in the production. The remaining production(crude oil and gas) is shared among the oil-producing country or
national oil company and the contractors according to fixed allocation ratios. (The contactors’ share of production after cost recovery is called “profit oil and gas.”) On the other hand, in cases
when exploration fails and expected production is not realized,
the contractors are not to recover their invested funds.

(2) Accounting treatment of production sharing
contracts

contractor it invests technology and funds in the exploration anddevelopment of the property, recovers the invested costs fromthe production produced, and receives a share of the remaining
production after recovery of invested costs as compensation.
Costs invested on the basis of production sharing contracts
are recorded on the balance sheet as assets for which future recovery is anticipated under the item “Recoverable accounts under production sharing.” After the start of production, recovered
costs on the basis of those agreements are deducted from thisbalance sheet item.
As production received under production sharing contracts isdivided into the cost recovery portion and the compensation portion, the method of calculating cost of sales is also distinctive.
That is to say, the full amount of production received is temporarily charged to cost of sales as the cost of received production,and subsequently the amount of the compensation portion is calculated and this amount is booked as an adjustment item to costof sales (“Free of charge production allocated”). Consequently,
only the cost recovery portion of production after deduction of
the compensation portion is booked as cost of sales.

When a company in the Group owns participating interests under
production sharing contracts, as mentioned above, in the role of

2. RELATIONSHIP WITH THE JAPANESE GOVERNMENT(1) The Company’s relationship with
the Japanese government
Although the government of Japan (the Minister of Economy,
Trade and Industry) holds 18.96 of the Company’s common sharesissued (excluding treasury shares) and a Class A Stock as of March
26, 2021, the Company autonomously exercises business judgment as a private corporation. There is no relationship of control,
such as through the dispatch of officers or other means between
the Company and the Japanese government. Moreover, we believe that no such relationship will develop in the future. Furthermore, there is no concurrent posting or secondment to theCompany of officers or employees from the Japanese
government.

(2) Ownership and sale of the Company’s sharesby the Japanese government (the Minister of
Economy, Trade and Industry)
The Ministry of Economy, Trade and Industry (METI) holds 18.96%
of the Company’s common shares issued (excluding treasury
shares). METI succeeded to the shares that had been held by Japan National Oil Corporation (JNOC) following the dissolution of
JNOC on April 1, 2005. With regard to the liquidation and disposition of the oil and gas upstream assets owned by JNOC, thePolicy Regarding the Disposal of Oil and Gas Development-Related Assets Held by Japan National Oil Corporation (hereinafter,
the “Report”) was announced on March 18, 2003 by the Japan

National Oil Corporation Asset Evaluation and Liquidation Deliberation Subcommittee of the Advisory Committee on Energy andNatural Resources, an advisory body of the Ministry of Economy,
Trade and Industry. The Report describes the importance of appropriate timing in selling the shares on the market, taking into
consideration enterprise value growth. In addition, METI may, in
accordance with the Supplementary Provision Article 13 (1) 2 of
the “Special Measures Act for Reconstruction Finance Keeping
After the Great East Japan Earthquake” (“the Reconstruction Finance Keeping Act“ (provisional translation, the same shall apply
hereinafter)) enacted December 2, 2011, sell off the Company’s
shares in Japan or overseas after examining the possibility of disposal of the said shares based on a review of the holdings fromthe perspective of energy policy. This could have an impact on
the market price of the Company’s shares.
METI also holds one share of the Company’s Class A Stock. As
the holder of a Class A Stock, METI possesses veto rights overcertain resolutions of the Company’s general shareholders’ meetings and meetings of the Board of Directors. For details on theClass A Stock, please refer to “4. CLASS A STOCK” on P. 105.

INPEX CORPORATION Annual Report 2020

Performance and Financial Overview

We strive to actively manage risks related to our business ingeneral through measures including preparing an emergency/crisis response plan and conducting regular emergency response
drills at ordinary times, to enhance our ability to respond to emergency situations caused by events such as major accidents anddisasters. In addition, we have formulated a Business Continuity
Plan (BCP) and review it as appropriate to prevent important operations from being interrupted.
Furthermore, the Information Security Committee meets bothon a regular basis and as needed, taking action on information
security on an organizational and systematic basis, as well as conducting education and training including prevention of information leakage.

1. PRODUCTION SHARING CONTRACTSThe Basis of our Value Creation

In order to respond to the risks listed in items 1 through 4
above, we have introduced guidelines for economic and risk evaluation we conduct on a per-project basis. After recognizing majorrisks, we analyze and examine whether to take on new projects
and take action against these risks. For existing projects, the INPEX Value Assurance System (IVAS) Committee works asa cross-organizational mechanism mainly for technical evaluation
at each project phase, such as exploration, evaluation and development. At the same time, we conduct economic and risk evaluation in principle at least once a year. For major projects, we reporta summary of risk evaluation results to the Board of Directors
each year.

To manage health, safety and environment (HSE) risk, we haveintroduced the HSE Management System (HSEMS) Manual to facilitate effective and consistent HSE management and improve
HSE performance across the entire business.
To continuously improve the environment and occupational
health and safety in our oil and natural gas development business, we identify, analyze and evaluate HSE risks for each businesssite based on the HSE Risk Management Procedure establishedunder the HSE Management System. Moreover, to formulate andimplement risk response measures, as well as to monitor HSE
risks, we have a system where the risk management status is regularly reported to headquarters. We are also working on the company-wide management of security-related risks based on various
guidelines and standards.
We conduct financial risk management regarding crude oiland natural gas prices, currency exchange rates, interest rates
and securities prices by identifying their respective risks associated with fluctuations and establishing corresponding management
and hedging methods.
To tackle climate change, in our Business Development Strategy—Towards a Net Zero Carbon Society by 2050 announced in
January 2021, we have set our goal of achieving net zero carbon
emissions by 2050 in line with the Paris Agreement objectives. Towards this goal, the Group will actively promote five business pillars to offer solutions responding to the needs of society in anage of transformation towards a net zero carbon society. Specifically, we will (1) reduce CO2 emissions from upstream operations
by promoting Carbon dioxide Capture, Utilization and Storage(CCUS), (2) develop a hydrogen business, (3) enhance and emphasize renewable energy initiatives, (4) promote carbon recycling
and cultivate new business opportunities and (5) promote forest
conversation. By doing this, we will proactively respond to theshift towards a net zero carbon society and aim to be a pioneer ofenergy transformation.
We manage country risk by, among others, establishing guidelines for handling country risks in the countries where we operate,
including setting a maximum target amount of accumulated investments in high-risk countries.
Furthermore, we have developed a mechanism to counter legal risk, where business divisions and management can receive
appropriate legal guidance regarding matters such as important
agreements and lawsuits.

Growth Strategies for Value Creation

The Group engages in a large number of oil and natural gas development projects overseas. Because the Group’s business activities, including the acquisition of participating interests, areconducted on the basis of contracts with the governments ofoil-producing countries and other entities, steps taken by oil-producing countries to further tighten controls applicable to homecountry natural resources, suspension of operation due to conflicts and other factors, and other such changes in the political,
economic, and social circumstances in such oil-producing countries or neighboring countries (including government involvement, stage of economic development, economic growth rate,
capital reinvestment, resource allocation, restriction of economic
activities by global community, government control of foreign exchange or foreign remittances, and the balance of international
payments), the application of OPEC production ceilings in OPEC
member countries and changes in the legal system and taxation
system of those countries (including the establishment or abolition of laws or regulations and changes in their interpretation or
enforcement) as well as lawsuits could have a significant impact
on the Group’s business or results unless the impact is compensated by insurance.
Additionally, against the background of rising development
costs and other changes in the business environment, the progress of oil and gas projects and the need to address environmental issues, the governments of oil-producing countries may seek
to renegotiate the fiscal conditions including conditions of existing oil contracts related to participating interests. In the eventthat fiscal conditions of contracts are altered, this could have an
adverse effect on the Group’s business performance.

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In the aforementioned Report, INPEX CORPORATION (prior to
the integration with Teikoku Oil; reorganized on October 1, 2008)
was identified as a company that should comprise part of a corecompany, and is expected to play a role in efficient realization ofa stable supply of energy for Japan through the involvement by
a national flagship company. In response to the Report, the Company (also, the Group since our acquirement of Teikoku Oil on
October 1, 2008) has sought to promote efficient realization ofa stable supply of energy for Japan while taking advantage ofsynergy with the efforts of active resource diplomacy on the partof the Japanese government, and has aimed to maximize shareholder value by engaging in highly transparent and efficient business operations.
As a result, with regard to the integration by means of transferof shares held by JNOC proposed in the Report, INPEX CORPORATION and JNOC concluded the Basic Agreement Concerning
the Integration of Assets Held by JNOC into INPEX CORPORATION of February 5, 2004 (hereinafter the “Basic Agreement”)
and a memorandum of understanding related to Basic Agreement (hereinafter “MOU”). On March 29, 2004, INPEX CORPORATION and JNOC entered into related contracts including the
Basic Contract Concerning the Integration of Assets Held by
JNOC into INPEX CORPORATION (hereinafter the “Basic Contract”), achieving the agreement on the details including thetreatment of the project companies subject to the integration andshareholding ratios.
The treatment of Sakhalin Oil and Gas Development Co., Ltd.
(hereinafter “SODECO”), INPEX Masela, Ltd., INPEX North Caspian Sea, Ltd., INPEX North Makassar, Ltd. (liquidation proceedings completed on December 19, 2008), and INPEX Offshore
North Campos, Ltd. (following the acquisition of all shares in thiscompany by private-sector shareholders, including INPEX CORPORATION, this company was sold to a third-party in October2019), was agreed between INPEX CORPORATION and JNOC in
the MOU of February 5, 2004. Regarding the treatment of sharesof SODECO, refer to the section “(2) Treatment of the shares of
Sakhalin Oil and Gas Development (SODECO) owned by the Japanese government” on P. 104. With regard to the transfer to
INPEX CORPORATION of the shares in the above project companies other than SODECO, it was decided that the shares are to betransferred for cash compensation as soon as prerequisites suchas the consent of the oil-producing country and joint venture
partners and the possibility of appropriate asset evaluations arein place. However, the transfer of shares held by JNOC in theabove companies has not been decided and the shares in theabove project companies were succeeded to by the Japan Oil
Gas and Metals National Corporation (hereinafter “JOGMEC”)
on the dissolution of JNOC on April 1, 2005, except shares related to INPEX North Makassar, Ltd., to which the Minister of Economy, Trade and Industry succeeded. JOGMEC states in its“medium-term objective” and “medium-term plan” that theshares succeeded to from JNOC will be disposed of at an appropriate time and in an appropriate manner. However, the timing
and manner of disposal for those shares in the above companies
held by JOGMEC that have not been acquired by INPEX CORPORATION have not been decided, and it is possible that theCompany will be unable to acquire these shares.

The Japanese government (the Minister of Economy, Trade andIndustry) owns 50% of the shares of SODECO. SODECO was established in 1995 to engage in an oil and natural gas explorationand development project located on the northeast continental
shelf off Sakhalin Island. SODECO owns a 30.0% interest in the
Sakhalin-1 Project, of which ExxonMobil of the United States isthe operator. In October 2005, Phase 1 of this project started withthe goal of advanced production of oil and natural gas. Furthermore, there is a plan for additional development operations(Phase 2) for the purpose of the full-scale production of naturalgas. The Company holds 6.08% of SODECO shares issued andoutstanding.
In the previously mentioned Report, SODECO, along with INPEX CORPORATION and JODCO, has been identified as a company that should comprise part of a core company in Japan’s oiland natural gas upstream industry in the future.
In accordance with the Report, it is assumed that private-sector shareholders, including INPEX CORPORATION, will acquire
shares of SODECO issued and outstanding to which the Ministerof Economy, Trade and Industry succeeded and that were previously held by JNOC (50.0%). The Company plans to hold a maximum of 33% of the SODECO shares to become its largest
shareholder. In the event that the consent of SODECO’s joint-venture partners, the relevant Russian government entity, or otherparties is necessary for the acquisition of the shares, obtaining theconsent is a prerequisite for acquisition. In addition, it will be necessary to reach agreement on the shareholder composition for
SODECO, the share transfer price, and other matters.
In the event that the additional acquisition of the SODECO
shares is realized, the Group will hold a substantial ownership interest in oil and natural gas assets in Russia, as well as in Asia andOceania, the Middle East, Caspian Sea area, and other regions,and we expect the acquisition to contribute to the achievementof a more balanced overseas asset portfolio for the Group.
However, at this time it is undecided whether agreement concerning acquisition of the shares with the Minister of Economy,
Trade and Industry will be reached as anticipated and will be realized. Also, even in the event that the acquisition is realized, theconditions and time of acquisition are undecided and, dependingon the result of review in accordance with the Reconstruction Finance Keeping Act, the acquisition by the Company could be
unavailable.

INPEX CORPORATION Annual Report 2020

The Company was established as the holding company througha stock transfer between INPEX CORPORATION and Teikoku OilCo., Ltd. on April 3, 2006. Along with this, a classified share originally issued by INPEX CORPORATION (prior to the merger) wastransferred and at the same time the Company issued a classified
share with the same effect (hereinafter the “Class A Stock”) to the
Minister of Economy, Trade and Industry. The classified shareoriginally issued by INPEX CORPORATION was the minimally required and a highly transparent measure to eliminate the possibility of management control by foreign capital while notunreasonably impeding the efficiency and flexibility of management based on the concept in the Report discussed in the above
section 3. “TREATMENT OF SHARES OF THE GROUP’S PROJECT COMPANY OWNED BY JAPANESE GOVERNMENT AND
JOGMEC.” INPEX CORPORATION is identified as a company
that should comprise part of a core company for Japan’s oil andgas upstream industry and is expected to play a role in efficient
realization of a stable supply of energy for Japan as a nationalflagship company. On the basis of the concept of the Report, following a speculative acquisition or an attempt at management
controlled by foreign capital, Class A Stock is designed and issued to be highly transparent while not unreasonably impeding
the efficiency and flexibility of management and to keep the effects of any such speculative acquisition to the necessary minimum. At the same time, Class A Stock maintains the Company’srole in the efficient implementation of a stable supply of energy
for Japan as a core business, so that management is not conducted in a way contradictory to that role and no negative impact is
felt.

2) Shareholders’ meeting resolutions, dividends,
distribution of residual assets, and redemption

Unless otherwise provided by laws or ordinances, the Class
A Stock does not have any voting rights at the Company’s generalshareholders’ meetings. With regard to cash dividends paid andthe distribution of residual assets, the Company concluded
a stock split at a ratio of 1:400 of common stock with October 1,
2013, as the effective date. For Class A Stock (unlisted) no stock
split was conducted. The Articles of Incorporation specify that
dividends of Class A Stock are equivalent to dividends of a common stock prior to the stock split. The Class A Stock will be redeemed by resolution of the Board of Directors of the Company
if the holder of the Class A Stock requests redemption or if theClass A Stock is transferred to a party other than the governmentof Japan or an independent administrative body that is fully funded by the government of Japan.

3) Veto rights in the Articles of Incorporation

The Articles of Incorporation of the Company provide that an approval resolution of the meeting of the holder of the Class
A Stock is necessary in addition to resolutions of the Company’s
general shareholders’ meetings and resolutions of meetings ofthe Board of Directors for the decisions on certain important matters such as the appointment or removal of Directors, dispositionof material assets, changes to the Articles of Incorporation, business integration, capital reduction or company dissolution in connection with the business of the Company. Accordingly, theMinister of Economy, Trade and Industry, as the holder of theClass A Stock, has veto rights over these important matters. With
regard to the cases in which the Class A Stock veto rights are exercisable, please refer to “4) Criteria for the exercise of veto rights
provided in the criteria for the exercise of the Class A Stock holder’s voting rights”, at right.

Criteria concerning the exercise of the veto rights have been established in a Ministry of Economy, Trade and Industry Notice(No. 37, 2019) (hereinafter the “Notice”). The criteria stipulate theexercise of veto rights only in the following specific cases.
•	When resolutions pertaining to appointment or removal of Directors and integration are not voted down and it is judgedthat the probability is high that the Company will engage inmanagement inconsistent with the role that a core company
should perform for efficient realization of a stable supply of energy to Japan.
•	With regard to decisions related to the disposal of all or part ofsignificant assets, when resolutions pertaining to disposition ofmaterial assets are not voted down and the objects of disposition are oil and natural gas exploration or production rights orrights similar thereto or shares or ownership interest in the
Company’s subsidiary whose principal assets are said rights
and it is judged that the probability is high that the Company
will engage in management inconsistent with the role thata core company should perform for efficient realization of a stable supply of energy to Japan.
•	When resolutions pertaining to amendments to the Company’s
Articles of Incorporation relating to changes in the Company’sbusiness objectives, reduction in the amount of capital, or dissolution are not voted down and it is judged that the probability is high that the Company will engage in managementinconsistent with the role that a core company should perform
for efficient realization of a stable supply of energy to Japan.
•	When resolutions pertaining to amendments to the Articles ofIncorporation granting voting rights to any shares other thanthe common shares of the Company are not voted down andcould have an effect on the exercise of the voting rights of theClass A Stock.
It is provided that the above criteria shall not be limited in theevent that the Notice is changed in the light of energy policy.

(2) Risk in connection with the Class A Stock
Following a speculative acquisition or an attempt at management
controlled by foreign capital, Class A Stock is designed and issued to be highly transparent while not unreasonably impeding
the efficiency and flexibility of management and to keep the effects of any such speculative acquisition to the necessary minimum. At the same time, Class A Stock maintains the Company’srole in the efficient implementation of a stable supply of energy
for Japan as a core business, so that management is not conducted in a way contradictory to that role and no negative impact isfelt. Nevertheless, the anticipated risks in connection with theClass A Stock include the following.

Performance and Financial Overview(2) Treatment of the shares of Sakhalin Oil and
Gas Development (SODECO) owned by
the Japanese government4) Criteria for the exercise of veto rights provided in thecriteria for the exercise of the Class A Stock holder’svoting rights

The Basis of our Value Creation(1) Treatment of shares of the Group’s projectcompany previously owned by Japan National
Oil Corporation (JNOC)

1) Reason for the introduction(1) Overview of the classified share

Growth Strategies for Value Creation

4. CLASS A STOCKINPEX’s Vision and Value Creation

104

3. TREATMENT OF SHARES OF THE GROUP’S PROJECT COMPANY OWNED BY
JAPANESE GOVERNMENT AND JOGMEC

1) Possibility of conflict of interest between national
policy and the Company and its common shareholders

It is conceivable that the Minister of Economy, Trade and Industry
could exercise the veto rights in accordance with the above criteria provided in the Notice. As the said criteria have been provided
from the standpoint of efficient realization of a stable supply ofenergy to Japan, it is possible that the exercise of the veto rights
by the Minister of Economy, Trade and Industry could conflict with
the interest of other shareholders who hold the Company’s common shares. Also, it is possible that the said criteria could bechanged in the light of energy policy.

INPEX CORPORATION Annual Report 2020

105

Oil and Gas Reserves and Production Volume
INPEX’s Vision and Value Creation

1. Oil and Gas Reserves2) Impact of the exercise of veto rights on the price ofshares of common stock
As mentioned above, as the holder of the Class A Stock has theveto rights over certain important matters in connection with thebusiness of the Company, the actual exercise of the veto rights
over a certain matter could have an impact on the price of theCompany’s shares of common stock.

3) Impact on the Company’s degree of freedom inbusiness and business judgmentneeds a resolution of the meeting of the holder of the Class
A Stock concerning the above matters. For this reason, the Company’s degree of freedom in management in those matters could
be restricted by the judgment of the Minister of Economy, Tradeand Industry. Also, attendant on the need for a resolution of themeeting of the holder of the Class A Stock concerning the above
matters, a certain period of time is required for procedures suchas the convening and holding of meetings and resolutions and forthe processing of formal objections, if necessary.

5. CONCURRENTLY SERVING OUTSIDE DIRECTORSThe Board of Directors of the Company is currently composed of
14 members, six of whom are outside directors.
Four of the six outside directors have many years’ experienceand knowledge of the Company’s business and are able to offer
objective, professional advice regarding operations. For this reason, they were asked to join the Board of Directors to contributeto the development of the Company’s business. Three of the directors concurrently serve as director or advisors of Japan Petroleum Exploration Co., Ltd., ENEOS Holdings, Inc., and Mitsubishi
Corporation (hereinafter “shareholder corporations”), respectively.
At the same time, however, the shareholder corporations are
involved in businesses that overlap with those of the Company.

The Company therefore recognizes that it must pay particular attention to corporate governance to avoid conflicts of interest inconnection with competition and other matters.
To this end, all Company directors, including the three outside
directors described above, are required to sign a written undertaking to carry out their duties as officers of the Company appropriately and with the highest regard for the importance of suchmatters as their obligations in connection with noncompetitive
practices under the Japanese Companies Act, the proper mannerfor dealing with conflict of interest, and confidentiality.

presented in accordance with the Accounting Standards Codification Topic 932 “Extractive Activities —Oil and Gas” (“Topic 932”).
The Group’s proved reserves as of December 31, 2020, were 2,700
million barrels for crude oil, condensate and LPG, and 5,586 billion cubic feet for natural gas, for a total of 3,730 million boe.

The following tables list the proved reserves of crude oil, condensate, LPG and natural gas of INPEX CORPORATION, its consolidated subsidiaries and equity-method affiliates (the “Group”) on
main projects. Disclosure contents for proved reserves are determined in accordance with the rules and regulations of the U.S. Financial Accounting Standards Board (the “FASB”), and are
Japan
Crude oil(MMbbl)Eurasia(Europe & NIS)

Asia & Oceania
Gas
(Bcf)

Crude oil(MMbbl)Gas(Bcf)

Crude oil(MMbbl)Gas(Bcf)

Crude oil(MMbbl)Gas(Bcf)

Crude oil(MMbbl)

4,968

289

148

2,343

—

4

—

—

—

—

—

—

—

—

—

—

—

44

Total

Gas
(Bcf)

Crude oil(MMbbl)

Gas
(Bcf)

6

2,845

5,849

—

—

—

25

44

25

32

23

56

136

—

0

14

157

135

(264)
4,736

(11)
301

(7)
198

(66)
2,413

—
—

(2)
46

(17)
27

(94)
2,952

(320)
5,688

330

12

—

5

—

—

—

20

330

—

—

—

—

—

—

—

—

—

—

(0)

—

—

—

—

—

(0)

—

11

4

—

1

—

0

0

5

11

(17)
324

(2)
15

—
—

(1)
5

—
—

(0)
—

(0)
—

(3)
22

(17)
324

5,060

315

198

2,419

—

46

27

2,974

6,012

4,736

301

198

2,413

—

46

27

2,952

5,688

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

(6)

30

26

(170)

—

(4)

2

(151)

(19)

(371)
4,359

(17)
314

(9)
215

(81)
2,162

—
—

(3)
39

(19)
10

(118)
2,684

(440)
5,229

324

15

—

5

—

—

—

22

324

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

56

(2)

—

0

—

—

—

(2)

56

(23)
357

(2)
11

—
—

(2)
4

—
—

—
—

—
—

(4)
16

(23)
357

4,715

324

215

2,166

—

39

10

2,700

5,586

3,037

260

215

1,513

—

3

2

1,920

3,900

169

9

—

1

—

—

—

11

169

1,321

54

—

649

—

36

8

763

1,330

188

2

—

3

—

—

—

5

188

Performance and Financial Overview

Proved developed reserves
INPEX CORPORATION and Consolidated Subsidiaries
As of December 31, 2020
16
646
129
Equity-method affiliates
As of December 31, 2020——
1
Proved undeveloped reserves
INPEX CORPORATION and Consolidated Subsidiaries
As of December 31, 2020——
24
Equity-method affiliates
As of December 31, 2020——
0Americas

The Basis of our Value Creation

Proved developed and undeveloped reserves
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 2019
18
727
190
Extensions and———discoveries
Acquisitions and sales———
Revisions of previous
1
33(3)
estimates
Interim production
(1)
(33)
(13)
As of December 31, 2019
18
728
174
Equity-method affiliates
As of March 31, 2019——2
Extensions and———discoveries
Acquisitions and sales———
Revisions of previous——(0)
estimates
Interim production——(0)
As of December 31, 2019——2
Proved developed and undeveloped reserves
As of December 31, 2019
18
728
176
INPEX CORPORATION and Consolidated Subsidiaries
As of December 31, 2019
18
728
174
Extensions and———discoveries
Acquisitions and sales———
Revisions of previous
(1)
(41)
(6)
estimates
Interim production
(1)
(40)
(16)
As of December 31, 2020
16
646
152
Equity-method affiliates
As of December 31, 2019——2
Extensions and———discoveries
Acquisitions and sales———
Revisions of previous——(0)
estimates
Interim production——(0)
As of December 31, 2020——
2
Proved developed and undeveloped reserves
As of December 31, 2020
16
646
154

Middle East &AfricaGrowth Strategies for Value Creation

As the Minister of Economy, Trade and Industry holds the Class
A Stock with the previously mentioned veto rights, the Company

Proved reserves

Notes: 1. Based on SEC disclosure standards, the Group discloses proved reserves in each country containing 15% or more of its proved reserves. As of December 31,
2020, the Group held proved reserves in Australia of approximately 145 million barrels for crude oil and approximately 4,170 billion cubic feet for natural gas, fora total of approximately 919 million boe.
2. Proved reserves (as of December 31, 2020) of the following blocks and fields include the portion attributable to non-controlling interests.
		 Eurasia (Europe & NIS): ACG (49%), Kashagan (49%)
		 Middle East & Africa: Abu Dhabi Onshore Concession (49%)
3. MMbbl: Million barrels
4. Bcf: Billion cubic feet
5. Crude oil includes condensate and LPG
6. Oil and gas reserves are rounded to the nearest whole number.

Standardized measure of discounted future net cash flows and their changes relating to proved oil and gas
reserves for the year ended December 31, 2020
Disclosure contents for the standardized measure of discounted
future net cash flows and their changes relating to proved reserves for the year ended December 31, 2020 are determined in

106

INPEX CORPORATION Annual Report 2020

accordance with the rules and regulations of the FASB, and arepresented in accordance with Topic 932.

INPEX CORPORATION Annual Report 2020

107

INPEX CORPORATION and Consolidated Subsidiaries
Future cash inflows
Future production and development costs
Future income tax expenses
Future net cash flows
10% annual discount for estimated timing of cash flows
Standardized measure of discounted future net cash flows

Total consolidated and equity-method affiliates instandardized measure of discounted future net cash flows

Middle East &AfricaAmericas¥1,132,190(334,782)(253,444)
543,964(298,301)
245,664¥ 3,354,557(1,341,047)(248,020)
1,765,491(686,627)
1,078,864¥1,912,255(706,959)(234,518)
970,779(509,475)
461,304¥ 17,447,487(6,162,938)(10,295,017)
989,532(625,989)
363,543¥ 286,233(187,891)(11,290)87,052(45,723)
41,329455,408(156,912)(118,401)
180,095(75,027)

—
—
—
—
—

314,808(111,093)(76,387)
127,328(62,093)

104,199(17,722)(38,745)
47,732(12,184)

36,401(28,096)(3,269)
5,035
(749)

—
—
—
—
—

105,069—

65,23535,5484,286—¥ 2,295,772¥ 245,664¥ 1,144,099¥ 496,852¥   367,829¥ 41,329

Japan¥ 24,132,722(8,733,617)(11,042,289)
4,356,817(2,166,114)
2,190,703

Note: Reserves of the following blocks and fields include the portion attributable to non-controlling interests.
		 Eurasia (Europe & NIS): ACG (49%), Kashagan (49%)
		 Middle East & Africa: Abu Dhabi Onshore Concession (49%)
Amounts are basically rounded to the nearest million.

December 31, 2020

Equity-method affiliates
Future cash inflows
Future production and development costs
Future income tax expenses
Future net cash flows
10% annual discount for estimated timing of cash flows
Share of equity-method investees’ standardized measure of
discounted future net cash flows
Total consolidated and equity-method affiliates instandardized measure of discounted future net cash flowsJapan

INPEX CORPORATION Annual Report 2020

Americas¥13,620,229(6,358,718)(4,941,757)
2,319,754(1,128,715)
1,191,039¥ 789,800(254,531)(174,850)
360,420(190,828)
169,591¥ 2,157,411(1,129,013)(74,682)
953,717(359,024)
594,693¥1,190,377(622,464)(108,183)459,730(236,386)
223,344¥ 9,328,481(4,207,125)(4,583,545)
537,812(332,935)
204,877¥ 154,159(145,587)
(498)
8,075
(9,542)(1,466)300,851(127,026)(65,795)
108,030(44,506)

—
—
—
—
—

234,251(92,956)(46,641)
94,654(41,547)

48,972(16,355)(18,375)
14,242(3,165)

17,627(17,715)
(778)
(867)
206

—
—
—
—
—

63,523—

53,107

11,077(661)—¥ 1,254,562¥ 169,591¥

647,800

Note: Reserves of the following blocks and fields include the portion attributable to non-controlling interests.
		 Eurasia (Europe & NIS): ACG (49%), Kashagan (49%)
		 Middle East & Africa: Abu Dhabi Onshore Concession (49%)
Amounts are basically rounded to the nearest million.

108

Middle East &Africa¥ 234,421¥

204,216¥ (1,466)

Asia &
Oceania

Millions of yen
Eurasia(Europe & NIS)

¥ 2,295,772¥ 245,664¥1,078,864¥ 461,304(824,730)(52,518)(244,641)(2,357,943)(63,926)

170,496555(30,077)(1,029)(33,563)(9,719)4,883

15,739(6,389)(282,884)
194,215
2,216,081

183
19,61834,568(23,789)
92,296
126,641

48,57238,49949,031(305,127)
31,216
1,970,969(20,713)
3,771
4,335

17,991
8,815
30,537

Middle East &Africa¥Americas

Equity-method
affiliates

363,543¥ 41,329¥105,069(79,890)(398,024)(20,471)(29,186)(416,848)(282,659)(1,485,853)(42,227)(66,431)

75,11823,59843,27919,045

8,901

—

—

—

—

—

—

—

(126,367)(13,522)(59,384)(25,392)(20,011)(2,275)(5,783)¥ 1,254,562¥ 169,591¥ 594,693¥ 223,344

204,877¥(1,466)¥ 63,523¥

Note: Reserves of the following blocks and fields include the portion attributable to non-controlling interests.
		 Eurasia (Europe & NIS): ACG (49%), Kashagan (49%)
		 Middle East & Africa: Abu Dhabi Onshore Concession (49%)
Amounts are basically rounded to the nearest million.

2. Oil and Gas Production
The following tables list average daily production for crude oil,natural gas, and the total of crude oil and natural gas by region.
The proportional interests in production by the equity-method affiliates are not broken down by geographical regions.
Crude oil, condensate and LPG (Mbbld):Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Subtotal
Proportional interests in production by equity-method
affiliates
Total
Annual production (MMbbl)
Natural gas (MMcf/d):
Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Subtotal
Proportional interests in production by equity-method
affiliates
Total
Annual production (Billions of cubic feet)
Crude oil and natural gas (Mboed):Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Subtotal
Proportional interests in production by equity-method
affiliates
Total
Annual production (MMboe)

The Group’s production for the year ended December 31,
2020, was 331.1 thousand barrels per day for crude oil, condensate and LPG, and 1,264.6 million cubic feet per day for naturalgas, for a total of 573.4 thousand boed.

2016/32017/3

2018/3

2019/3

2019/122020/12

3.2
47.8
31.6
161.1
5.5
249.2

3.5
35.8
29.6
176.3
5.6
250.7

3.7
21.2
37.5
176.2
3.9
242.6

3.5
18.7
40.7
225.6
1.8
290.3

3.1
47.5
41.0
240.9
8.2
340.7

3.0
42.5
46.4
221.5
7.6
321.1

90.0

97.6

86.5

13.0

11.7

10.0

339.2
124.2

348.3
127.1

329.1
120.1

303.3
110.7

352.4
96.9

331.1
121.2

119.7
666.8
—
—
87.3
873.8

132.0
614.8
5.3
—
116.5
868.6

145.6
326.9
21.4
—
107.7
601.6

131.6
346.5
27.4
—
89.8
595.3

118.6
958.6
24.5
—
63.5
1,165.2

110.5
1,012.8
24.8
0.0
52.7
1,200.9

59.1

54.1

48.1

53.8

61.2

63.7

932.9
341.4

922.7
336.8

649.7
237.1

649.0
236.9

1,226.4
337.3

1,264.6
462.8

25.7
174.0
31.6
161.1
21.0
413.4

28.3
152.5
30.6
176.3
26.5
414.1

31.1
82.7
41.4
176.2
23.5
354.9

28.2
84.4
45.6
225.6
18.1
401.8

25.4
231.9
45.3
240.9
20.0
563.5

23.7
238.4
50.9
221.5
17.4
552.0

100.5

107.2

95.0

22.5

22.6

21.4

513.8
188.1

521.3
190.3

449.9
164.2

424.3
154.9

586.2
161.2

573.4
209.9

INPEX CORPORATION Annual Report 2020

Performance and Financial Overview

INPEX CORPORATION and Consolidated Subsidiaries
Future cash inflows
Future production and development costs
Future income tax expenses
Future net cash flows
10% annual discount for estimated timing of cash flows
Standardized measure of discounted future net cash flows

Total

Millions of yen
Asia &
Eurasia
Oceania(Europe & NIS)Japan

The Basis of our Value Creation

Equity-method affiliates
Future cash inflows
Future production and development costs
Future income tax expenses
Future net cash flows
10% annual discount for estimated timing of cash flows
Share of equity-method investees’ standardized measureof discounted future net cash flows

Millions of yen
Asia &
Eurasia
Oceania(Europe & NIS)

Total

INPEX CORPORATION andConsolidated Subsidiaries
Standardized measure at beginning of
the period As of January 1, 2020
Changes resulting from:
Sales and transfers of oil and gas
produced, net of production costs
Net changes in oil and gas prices andproduction costs
Development costs incurred
Changes in estimated future
development costs
Revisions of previous quantity estimates
Accretion of discountNet change in income taxes
Extensions, discoveries and improved
recoveries
OtherStandardized measure at end of
the period As of December 31, 2020

Total

Growth Strategies for Value Creation

December 31, 2019

The translation of U.S. dollar amounts into yen amounts iscomputed by applying the year-end exchange rates (TTM) of¥109.55 and ¥103.52 to the U.S. dollar as of December 31, 2019and December 31, 2020, respectively.
Since these figures are calculated in accordance with the rules
set forth by the FASB, which have the following aspects, they do
not represent the fair market value nor the Group’s estimation forthe present value of the cash flows of reserves of crude oil, condensate, LPG and natural gas.
• No economic value is attributed to potential reserves.
• A prescribed discount rate of 10% is applied.
• Oil and gas prices are subject to constant fluctuations despite
the assumptions of constant oil and gas prices of Topic 932.

INPEX’s Vision and Value Creation

In calculating the standardized measure of discounted future
cash inflows, the arithmetic average of oil and gas prices at thefirst day of each month during the current fiscal year is applied tothe estimated annual future production from proved reserves. Future development and production costs are estimated based
upon the assumptions of constant oil and gas prices and the continuation of existing economic, operating and regulatory conditions. Future income tax expenses are calculated by applying theyear-end statutory tax rates to estimated future pretax cash flows
less the tax basis of the properties involved based upon laws andregulations already legislated at year-end. The discount is computed by applying a prescribed discount rate of 10% to the estimated future net cash flows.

109

Corporate Information(As of December 31, 2020)

Information Disclosure and Activities for Shareholders and Investors

Corporate Data

INPEX undertakes the early delivery of convocation
notices for its general meeting of shareholders toensure that shareholders have sufficient time toconsider agenda items at each Ordinary General
Meeting of Shareholders. The Convocation Notice for
INPEX’s 15th Ordinary General Meeting of Shareholders
held in March 25, 2021 was posted on the Company’s
Web site more than three weeks prior to the meetingon February 24, 2021. The Convocation Notice itself wasdispatched on March 3, 2021.
To facilitate the exercise of voting rights, INPEX
implemented the exercise of voting rights via theInternet. The Company also adopted a platform for theelectronic use of voting rights while posting copies of
the convocation notice and other related documents,
both in Japanese and English, on its Web site and
TDnet (Timely Disclosure network).
Turning to the Company’s IR activities, INPEX
participates in events such as IR fairs for individualCompany Name INPEX CORPORATION
Established

April 3, 2006

Capital¥290,809,835,000

Company
Headquarters

Akasaka Biz Tower,
5-3-1 Akasaka, Minatoku, Tokyo 107-6332,
Japan

Number of
Employees(Consolidated)

Audit & Supervisory Board(members)
Audit & Supervisory
Board Members’ Office

Audit Unit

HSE Unit

Legal Unit

Strategic Projects officeHydrogen & CCUS Development office

General Administration DivisionCorporate Strategy & Planning Division

Finance & Accounting Divisiona-1+

Logistics & IMT DivisionAA- (stable)

Technical Division

Rating & Investment Information (R&I)

Global Energy Marketing Division

A-2

Domestic Energy Supply & Marketing DivisionA- (stable)

New Ventures & Global Exploration Division

Standard & Poor’s

Asia Projects Division

Main BusinessResearch, exploration, development,
production and sales of oil, natural gas
and other mineral resources, otherrelated businesses and investment andlending to the companies engaged inthese activities, etc.

Oceania Projects Division—

Compliance Committee

INPEX Value Assurance
System Committee

America Projects Division

A2 (stable)

INPEX Advisory Committee

President & CEO

Information Security Committee

Eurasia, Middle East & Africa Projects Division

Moody’s

Executive Committee

CSR Committee

Abu Dhabi Projects Division

Short-Term Credit Ratings

Nomination and Compensation
Advisory Committee

Corporate HSE Committee

Domestic Exploration & Production Division

Long-Term Credit Ratings

Board of Directors

3,163

Credit Rating (As of June 23, 2021)
Credit Rating Agency

General Meeting of Shareholders

Renewable Energy & Power Business Division

investors and meetings in a variety of venues virtually or
in-person. INPEX holds biannual meetings for analysts
and institutional investors, either virtually or inperson,
covering topics ranging from financial results to financial
forecasts. Video archives are available on the IR sectionof the Company’s Web site both in Japanese and in
English. INPEX undertakes overseas IR road shows in
the regions including Europe, North America and Asia,
while participating in conferences and engaging in oneon-one meetings virtually or inperson as necessary.
The Company’s Web site (IR section: www.inpex.
co.jp/english/ir/) features a host of IR tools including
financial reports, financial results presentations andannual reports. Furthermore, efforts are made todisclose pertinent information such as the latest news
releases, the Company’s performance and financial
position, as well as trends in crude oil prices, foreign
currency exchange rates, the Company’s share priceand stock information.

Organization Chart (As of March 1, 2021)

Stock Data
Authorized Shares

Total Number of Shareholders and Issued Shares

3,600,000,000 common stocks
1 Class A Stock

Common Stock 108,717/1,462,323,600 sharesClass A Stock* 1 shareholder (Minister of Economy, Trade and Industry) / 1 share*The Company’s Articles of Incorporation stipulate that certain major corporate decisions require a resolution by theholder of the Class A Stock in addition to the approval of the shareholders’ meetings or the Board of Directors.

Major Shareholders (Common Stock)

Status of Inclusion in Major Indexes (As of May 2021)
Nikkei Stock Average (Nikkei 225)
Nikkei Stock Index 300 / Nikkei 500 Stock Average
TOPIX
TOPIX Mid 400/TOPIX 500/TOPIX 1000
JPX-Nikkei Index 400
MSCI Japan Index
MSCI World Energy Index
FTSE4Good Developed Index/
FTSE4Good Japan Index
FTSE Blossom Japan Index

 SCI ESG Leaders Indexes/
M
MSCI Japan ESG Select Leaders Indexes/
MSCI Japan Empowering Women Index
S&P/JPX Carbon Efficient Index
STOXX Global ESG Leaders Index
ECPI World ESG Equity/
ECPI Global Carbon Liquid/
ECPI Global Developed ESG Best in ClassSOMPO Sustainability Index

About INPEXOur Business

https://www.inpex.co.jp/
english/https://www.inpex.co.jp/english/company/

https://www.inpex.co.jp/english/
business/

INPEX CORPORATION Annual Report 2020

Minister of Economy, Trade and Industry, Japan
Japan Petroleum Exploration Co., Ltd.
The Master Trust Bank of Japan, Ltd. (Trust Account)
Custody Bank of Japan (Trust Account)
ENEOS Holdings, Inc.
Custody Bank of Japan (Trust Account 7)
JAPAN SECURITIES FINANCE CO., LTD.
SMBC Nikko Securities Inc.
STATE STREET BANK WEST
CLIENT - TREATY 505234
THE BANK OF NEW YORK MELLON 140051

276,922,800
106,893,200
106,437,300
59,699,100
43,810,800
27,530,000
24,209,700
21,957,900

18.96
7.32
7.29
4.09
3.00
1.89
1.66
1.50

17,373,143

1.19

16,988,100

1.16*The shareholder ratio is calculated after subtracting treasury shares (1,966,500 shares).
The shareholder ratio is rounded off to the nearest whole number.

 edium-term Business
M
Plan 2018-2022

https://www.inpex.co.jp/english/company/ https://www.inpex.co.jp/
business_development_strategy.html
english/company/midterm.html

110

Name

Website Information

Business Development Strategy - Towards
a Net Zero Carbon Society by 2050

Shareholding by Shareholder Type
Percentage of
Number of
total common
common sharesshares* (%)

IRhttps://www.inpex.co.jp/
english/ir/

Shareholder type

Financial Institutions(Including Trust Accounts)
Securities Companies
Other Domestic
Corporations
Minister of Economy,
Trade and Industry2
Foreign Corporations
and Other
Individuals and Other
Treasury Shares

Number ofshareholders

Number of Percentage ofcommon total commonsharesshares¹ (%)

76

346,280,288

23.68

64

92,497,267

6.33

741

208,681,980

14.27

1

276,922,800

18.94

1,037

411,834,712

28.16

106,7971

124,140,053
1,966,500

8.49
0.13

1. The percentages of total common shares are for the total number ofissued common shares. The shareholder ratio is rounded off to thenearest whole number.
2. Excludes one Class A Stock

CSR
https://www.inpex.co.jp/
english/csr/
Sustainability Reporthttps://www.inpex.co.jp/english/csr/csr/

Inquiries
For IR inquiries, as well as to offer comments
and opinions about this report, please contact
below.
Corporate Strategy & Planning DivisionCorporate Communications Unit
Investor Relations GroupWeb site:www.inpex.co.jp/english/ir/inquiries.html