Statutory Auditor

Statutory Auditor

Statutory Auditor

Executive Ofﬁcers

076

Noboru Himata

Seiji Yui*

Takashi Kubo

Masaharu Sano*

Kenji Kawano

Noboru Tezuka*

Yasuhisa Kanehara

Kunio Kanamori

Toshihiko Fukasawa

Shunichiro Sugaya*

Hirohisa Ota

Masahiro Murayama*

Yoshinori Yamamoto

Seiya Ito*

Hajime Kawai

Wataru Tanaka*

Atsushi Sakamoto

Takahiko Ikeda*

Arihiro Kezuka

Sadafumi Tanigawa

Kimiya Hirayama

Kasaburo Tamura

Nobuharu Sase

Akinori Sakamoto

Shigeharu Yajima

Kazuo Yamamoto

Tetsuro Tochikawa

Kazuhiko Itano

Yoshiro Ishii

Shuhei Miyamoto

Toshiya Oshita

INPEX CORPORATION Annual Report 2011

5.1

Five-Year Financial Information

078

5.2

Background Information

079(Oil and Gas Accounting Policies and Treatment)

Toshiaki Kitamura*

Yoshikazu Kurasawa

Financial /Corporate Information*Member of the Board

5.3

Management's Discussion and Analysis of Financial 082
Condition and Results of Operations

5.4

Business Risks

089

5.5

Oil and Gas Reserves and Production Volume

097

5.6

Consolidated Financial Statements /Notes to Consolidated Financial Statements

100

5.7

Report of Independent Auditors

117

5.8

Subsidiaries and Afﬁliates

118

5.9

Oil and Gas Glossary120

5.10 Corporate Information

121

Performance / Message
Business Overview

Koji Sumiya

Project Overview

Haruhito Totsune

Corporate Responsibility
and Management

Yoshitsugu Takai

Financial /Corporate Information

5

Samples of crude oil and condensate

Background Information

Five-Year Financial Information
INPEX CORPORATION and Consolidated Subsidiaries
For the years ended March 31, 2007, 2008, 2009, 2010 and 2011

Oil and Gas Accounting Policies and Treatment
ACCOUNTING METHODS FOR TYPES OF AGREEMENTS

2007

As of or years ended March 31,

2008

2009

2010

2011

(Results of operations)
Net sales:¥ 969,713¥1,202,965¥1,076,165¥ 840,427

Calculation of items in the income statement based on the

consolidated net sales revenues for INPEX CORPORATION

above PSC-related considerations is as follows:¥ 943,080

and its consolidated subsidiaries (the “Group”). Two types of

Crude oil

607,401

783,465

650,352

486,921557,911agreement govern the Group’s oil and gas operations. These• The Group records as net sales its share of total sales

Natural gas

332,937

391,091398,267

326,412356,247are production sharing contracts (the “PSCs”) and concession

relating to the oil and gas production that is allocated to28,922agreement s. The lat ter c ategor y also includes domes tic

Other29,37528,40927,54627,094mining rights, as well as overseas permits, licenses and lease

Cost of sales

343,795

390,554

319,038

298,168

334,833

Gross profit

625,918

812,411757,127542,259

608,247

Exploration expenses

17,68934,09525,982

15,711

12,000

Selling, general and administrative expenses

36,28548,346

50,68344,86944,254

1. Production sharing contracts

agreements.

contractors under the PSCs.
• The Group books as cost of sales the portion of “Recoverable
accounts under produc tion sharing” that is recovered
through the allocation of its share of the “cost recovery
portion.”Depreciation and amortization

12,86715,75917,19520,011

22,250

Produc tion sharing agreements are agreements by which

Recoverable costs under the PSCs

Operating income

559,077

714,211663,267

461,668

529,743

one or several oil and gas development companies serve as

Other income

60,08033,09032,035

21,47331,176

contractors that undertake at their own expense exploration andOther expenses

32,89461,501

79,135

41,114

52,332development work on behalf of the governments of oil-producing

Income before income taxes and minority interests

586,263

685,800

616,167

442,027

508,587

Exploration costs
The share of recoverable exploration costs incurred by theGroup under the terms of the relevant PSC is capitalized within“Recoverable accounts under production sharing.”

Income taxes

413,239491,349

470,378

325,126

368,697

Minority interests
Net income

7,932

21,205726

9,691

11,191

165,092

173,246

145,063

107,210

128,699

countries or national oil companies and receive production fromthe projects as cost recovery and compensation.

Cost recovery and production sharing
The PSCs determine the allocation of oil and natural gas
production among the host country’s government (or related(Financial position)

entity) and the contractors such as the Group. The allocation

Current assets

474,124565,111411,110492,855

492,932

Tangible fixed assets

219,227

254,481

297,636

358,094

379,862

PSC. The overview below is speciﬁc to one type of PSC typical of

Intangible assets

265,822265,481

253,681239,205

249,111many oil and gas projects in Indonesia, a country with which theInvestments and other assets

formula generally differs according to the terms of the individual

648,934

722,828805,618

923,624

1,558,475

1,608,107

1,807,901

1,768,045

2,013,778

2,680,380

Under this type of arrangement, the total production in any

Current liabilities

266,248

325,286

206,059

227,905

254,729

given year or other accounting period is allocated at the end ofLong-term liabilities

261,843

243,802

199,925

295,270

328,268

1,080,016

1,238,813

1,326,061

1,490,603

2,097,383

Total assets

Total net assets(Cash flows)
Cash flows from operating activities

231,982363,995

230,352

241,373274,094

Cash flows from investing activities(209,243)(261,767)(240,168)(251,812)(844,511)

Cash flows from financing activities

13,794(45,228)(46,090)

68,937548,057¥ 189,417¥ 222,270¥ 162,845¥ 216,395¥ 182,025

Cash and cash equivalents at end of the year
(Per share data)
Earnings per share (EPS) (Yen)¥ 70,423.45 ¥ 73,510.14 ¥ 61,601.60 ¥ 45,553.56 ¥ 40,832.40

Net assets per share (Yen)

436,467.92

Cash dividends per share (Yen)¥491,168.09

540,100.10

589,548.88

546,958.90

7,000.00 ¥7,500.00 ¥8,000.00 ¥5,500.00 ¥6,000.00

Net debt / Net total capital employed (%)* 1,2(18.6)%(36.1)%(31.2)%(30.6)%(48.9)%

Equity ratio (%)* 3

64.0

64.0

71.9

68.9

74.5

24.2 %

16.8 %

12.9 %

17.3 %

13.7 %(Financial indicators)

D/E ratio (%)*

4

*1 Net debt = Interest-bearing debt – Cash and cash equivalents – Time deposits – Public bonds and corporate bonds and other debt securities withdeterminable value*2 Net debt / Net total capital employed = Net debt / (Net assets + Net debt)*3 Equity ratio = (Net assets ­ Minority interests) / Total assets*4 D/E ratio = Interest-bearing debt / (Net assets – Minority interests)

078

T he oil and nat ur al gas b usine s s g e ner ate s t he b ulk of

INPEX CORPORATION Annual Report 2011

Group has concluded numerous PSCs.

the period between three portions.

(1) “First tranche petroleum”: This is a prescribed portionof total production allocated between the host country’s
g ove r nm e nt a n d t he co nt r ac to r s i n li ne w i t h ag re e dpercentages.
(2) “Cost recovery portion”: This is the oil and gas equivalentof a) non-capital production-related expenditures incurred inthat period, plus b) the scheduled depreciation expenses inthat period for capital expenditures, as calculated under the
PSC. The equivalents are determined based on the current
unit prices of oil and natural gas and allocated between thecontractors alone. The quantity of oil and gas in the “costrecovery portion” decreases as unit prices increase, whereasthat of the “equity portion” (explained below) rises. If theactual production for the period is insufficient to cover thequantity 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 the following
period, as stipulated in the PSC.

Development costs
The share of all development costs incurred by the Group thatis recoverable 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.”
Interest on loans
Any interest expense that is recoverable under the relevant PSC
is recorded within “Recoverable accounts under production
sharing.”
As discussed above, in “Cost recover y and produc tion
sharing,” these costs are recovered either as capital or operating
expenditures.

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
or costs relating to the acquisition of rights to projects alreadyin the development or production phase are capitalized within“Exploration and development rights” and amortized based on
the units-of-production method. These amortization costs arerecorded within “Depreciation and amortization.” Cost recovery
provisions in the PSCs do not generally cover these expenditures.

Financial /Corporate Information

Millions of yen(3) “Equity portion”: This is any residual production that is left
after the ﬁrst two portions have been allocated. It is allocatedbetween the host country’s government and the contractors
based on agreed percentages.

INPEX CORPORATION Annual Report 2011079

Exploration costs
The Group’s share of exploration costs is expensed as incurred.

reserve equal to exploration costs is recorded within “Allowance— Provision for exploration projects

for recoverable accounts under production sharing” to provide

A provision for exploration projec ts is provided for future

for potential losses from unsuccessful exploration. This reserve

expenditures of consolidated subsidiaries at the exploration

typically remains unchanged on the balance sheet until it exceeds

stage based on a schedule of investments in exploration. While

the residual balance of exploration costs that had previously

the Group believes that assessments relating to the schedulebeen capitalized within “Recoverable accounts under productionof investments are reasonable, changes to the schedule could

sharing” during the exploration phase. Reﬂecting the uncertainty

signiﬁcantly affect future operating results.

disposition of the oil and gas it extracts. Revenues are returned

Development costs
The Group’s s hare of any develop ment cos t s related tomining facilities is capitalized within tangible fixed assets. The
depreciation of tangible fixed assets that are governed byconcession agreements is computed primarily using the unitsof-production method for mining assets located outside Japanand the straight-line method for domestic facilities. These“Allowance for recoverable accounts under production sharing”

to the host country in the form of royalties, taxes, etc., on sales.

depreciation expenses are recorded within the cost of sales.

— Deferred tax assets

to provide for probable losses on development activities, as

Deferred tax assets reﬂect temporary differences (including net

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

individually estimated for each project. While assessments andoperating loss carry-forwards) arising mainly from the write-down

accounting estimates are made on a reasonable basis, actualof investments in related parties, foreign taxes payable andoperating results can change depending on project status.

excess of tax allowable depreciation. Valuation allowances are

A 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 or a 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 ofAcquisition costs
Costs relating to the acquisition of rights (recorded as intangible
as s et s und er “Mining r ight s”) for projec t s gover ne d byconcession agreements are treated in the same way as projects
governed by the PSCs, as described above.

Production sharing contracts
Costs

Exploration
costs

Development
costs

Production costs(Operating costs)

Statements ofIncomeProject under
exploration phase

Provision for allowance
for recoverable
accounts under
production sharing

Project underdevelopment andproduction phase
Recoverable
accounts under
production sharing
Project underdevelopment andproduction phase

Acquisition
costs

Concession agreements

Assets on
Balance Sheets

Recoverable
accounts under
production sharing

Exploration anddevelopment
rightsAdministrative expenses
The Group’s share of administrative expenses is expensed as
incurred.

Costs

Exploration
costs

Assets on
Balance Sheets
All exploration costs
are expensed
as incurredStatements ofIncomeExploration
expenses

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

Development
costs

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

Selling, general andadministrative expenses(Depreciation andamortization)
Other expenses(Amortization of
exploration anddevelopment rights)

Production costs(Operating costs)

Acquisition
costs

Tangible fixed
assetsAll production costs
are expensed
as incurred

Mining rights

Cost of sales(Depreciation andamortization)

Cost of sales(Operating expenses)

Cost of sales(Depreciation andamortization)

associated with oil and gas projects, a reserve is recorded withinprovided once it is judged that the non-realization of deferred— Units-of-production method

tax assets has become the more probable outcome. The effectOverseas mining facilities, mining rights and exploration andof foreign tax credits is taken into account in the calculation ofdevelopment rights that are acquired during the development

such valuation allowances. Realization of deferred tax assets isand production phase are mainly depreciated or amortizedprincipally dependent on the generation of sufficient taxable

based on the units-of-produc tion method. This approach

income, based on the available information. Adjustments torequires the estimation of reserves. While the Group believesdeferred tax assets could be required if future taxable incomethat the assessment of reser ves is done in an appropriate

was lower than expected due to market conditions, foreignmanner, any changes in these estimates could signiﬁcantly affectexchange rate ﬂuctuations or poor operating performance.

future operating results.

— Retirement beneﬁts to employees— Asset retirement obligations

Accrued retirement benefits to employees are recognized as

Asset retirement obligations are recorded by a reasonableof the net present value of future obligations as of the end of

estimate of retirement costs incurred upon termination of thethe accounting period, taking into account any periodic beneﬁt

operation with respect to oil and gas production facilities in casecosts that have arisen during the period. The determinationthat the Group is obliged to retire such facilities by oil and gasof retirement benefits and periodic benefit costs is based oncontracts or laws and regulations with the countries in which

various actuarial assumptions, including the discount rate,

the Group operates or has working interests. While the Group

employee turnover and retirement rates, remuneration growth

believes that such estimates of the present value of retirement

rates, and the expected return on pension plan assets. Future

costs are reasonable, changes to estimates of the present value

operating results could be significantly affected by deviationof retirement costs could significantly affect future operating

between the base assumptions and actual results or revision of

results.

such assumptions were to generate actuarial gains or losses.

— Allowance for investments in exploration companies
A reser ve is recorded to provide for probable los ses oninvestments made by the Group in entities engaged in oil and

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

gas activities, as estimated based on the net assets of such
entities. While the Group believes that the assessments andestimates relating to such investments are reasonable, changes

The Group’s consolidated financial statements are preparedrational changes to such estimates could exert a material impact

in actual production volumes, prices or foreign exchange rates

in conformity with Japanese GAAP. The preparation of theseon financial condition or operating results. Critical accounting

could signiﬁcantly affect future operating results.

financial statements requires the application of estimates,

policies and estimates relating to financial presentation are

judgments and assumptions that affect the reported values ofoutlined below.

— Goodwill
The excess cost over underlying net assets excluding minority
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.

Financial /Corporate Information

2. Concession agreements

assets and liabilities at the date of the financial statements, aswell as the reported amounts of revenues and expenses for the080

reporting period. Actual results may differ from the previously— Allowance for recoverable accounts under
production sharing

estimated or assumed values.

Any expenditures made during the exploration, development

Accounting estimates pursuant to the preparation of theand production phases of projects governed by the PSCs areconsolidated financial statements are deemed critical if thecapitalized within “Recoverable accounts under production

degree of uncertainty associated with such estimates is high, or if

sharing” if they are recoverable under the relevant PSC. A

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011081

Management’s Discussion and Analysis of Financial
Condition and Results of Operations(Millions of yen, %)BUSINESS ENVIRONMENT
Years ended March 31,

that significantly af fec ts the Group businesses, star ted at
an exchange rate of ¥93 level against the U.S. dollar at the
beginning of the year, with the yen continuing to appreciate.
Under increasing hesitancy in U.S. economic indicators from June
2010, the Federal Open Market Committee (FOMC) released
a statement that the U.S. economy was in a recession and theFederal Reserve Chairman Ben Bernanke warned that the U.S.
economic outlook remains “unusually uncertain.” This economic
situation resulted in the increasing expectation on market ofmonetary easing, leading both U.S. long- and short-term interest
rates to lower and the yen to trend upward against the U.S.
dollar. In late October 2010, the exchange rate had exceeded¥81 against the U.S. dollar, despite Bank of Japan intervention in
September 2010. Once the FOMC announced a second roundof quantitative easing in November 2010, excessive market
expectations for further monetary easing were reduced andcaused a lull in yen appreciation. After the Great East Japan
Earthquake in March 2011, however, the yen sharply appreciated,as the dollar plunged to a postwar record low of ¥76.25 on
speculation that Japanese companies would sell foreign assets toraise capital. The yen returned to the ¥80 level to the U.S. dollar
level after joint G-7 intervention, with the TTM closing at ¥83.15
against the U.S. dollar, ¥9.89 higher than that at the close of theprevious year ended March 31, 2010. As a result, the average
yen exchange rate for the Group’s sales appreciated to ¥85.66
against the U.S. dollar, a gain of ¥6.98, or 7.5% compared withthe previous year.

PERFORMANCE OVERVIEW
Net sales
Despite a decrease in natural gas sales volumes and the pressure
on sales caused by the appreciation of the average exchange rateof the yen against the U.S. dollar during the year, consolidated
net sales for the year ended March 31, 2011 increased ¥102.7
billion or 12.2% to ¥943.1 billion, from ¥840.4 billion for theyear ended March 31, 2010, due to the rise in oil and gas prices.
Compared with the previous year, net sales of crude oil increased¥71.0 billion, or 14.6%, to ¥557.9 billion from ¥486.9 billion, andnet sales of natural gas increased ¥29.8 billion, or 9.1%, to ¥356.2
billion from ¥326.4 billion. Net sales excluding crude oil andnatural gas increased ¥1.8 billion, or 6.7%, to ¥28.9 billion from¥27.1 billion.
Crude oil sales volume increased 556 thousand barrels or
0.7% to 76,651 thousand barrels compared with the previous
year. This increase was mainly due to the commencement of
production in the Van Gogh ﬁeld, in spite of a decrease in sales
volumes from the ACG oil fields. Sales volumes of natural gas
decreased 18 billion cubic feet (Bcf), or 4.2%, to 401 Bcf. Of this,sales of overseas natural gas declined 18 Bcf, or 5.1%, to 337
Bcf, mainly due to a decrease in the volume of sales from the
Offshore Mahakam Block. Sales of domestic natural gas rose
15 million m3, or 0.9%, to 1,722 million m3 (equivalent to 64 Bcf).
The average sales price of crude oil produced overseas was
US$84.34/bbl, an increase of US$15.94, or 23.3%, compared withthe previous year. The average sales price of overseas natural082

INPEX CORPORATION Annual Report 2011

gas was US$9.10 per thousand cubic feet (Mcf), an increase of
US$1.67, or 22.5% compared with the previous year. The averagesales price of natural gas produced in Japan was ¥41.73/m3, an
increase of ¥4.68/m3, or 12.6% compared with the previous year.
An analysis of the factors contributing to the year-on-yearincrease of ¥102.7 billion in net sales shows that the decrease insales volumes caused a reduction of ¥7.8 billion, with the rise inaverage unit prices contributing ¥177.1 billion to the increase,the stronger yen pushing sales down of ¥68.4 billion, and theincrease in net sales excluding crude oil and natural gas of ¥1.8
billion.

Net sales■Other sales■Natural gas sales■Crude oil sales(¥million)
1,500,000

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
Gain on change in equity
Gain on transfer of mining rights
Other
Other expenses:
Interest expense
Equity in losses of affiliates
Provision for allowance for doubtful accounts
Provision for allowance for recoverable accounts under production sharing
Provision for exploration projects
Provision for investments in exploration
Loss on adjustment for changes of accounting standard for asset retirement
obligations
Foreign exchange loss
Other
Income before income taxes and minority interests
Income taxes
Income before minority interests
Minority interests
Net income

2011

ChangeRatio¥840,427
486,921326,41227,094
298,168
542,259
15,711
44,86920,011
461,668
21,473
4,354
9,476
—
—
—
7,643
41,114
1,275
1,920
—
6,028
8,595
5,408

¥943,080
557,911356,247
28,922334,833
608,247
12,00044,254
22,250529,743
31,176
4,110
5,722
4,934
3,644
7,334
5,432
52,332
1,074
—
9,133
11,481
3,082—¥102,653
70,99029,835
1,828
36,66565,988(3,711)(615)
2,239
68,075
9,703(244)(3,754)
4,934
3,644
7,334
(2,211)
11,218(201)(1,920)9,133
5,453(5,513)(5,408)

12.2%
14.6
9.1
6.7
12.3
12.2
(23.6)
(1.4)
11.2
14.7
45.2
(5.6)
(39.6)———(28.9)
27.3(15.8)(100.0)—90.5(64.1)(100.0)

—

1,555

1,555

—

13,2644,624
442,027
325,126—
9,691¥107,210

11,54014,467
508,587368,697
139,890
11,191¥128,699(1,724)
9,843
66,56043,571—
1,500¥21,489(13.0)
212.9
15.1
13.4
—
15.5
20.0%

Cost of sales

Exploration expenses

The cost of sales for the year ended March 31, 2011 increased¥36.6 billion, or 12.3%, to ¥334.8 billion from ¥298.2 billion in theprevious ﬁscal year. This was mainly due to an increase in the net
purchase of natural gas in Japan and an increase in depreciation
owing to the commencement of production in the Van Goghﬁeld.

E xploration expenses for the year ended March 31, 2011
decreased ¥3.7 billion, or 23.6%, to ¥12.0 billion from ¥15.7
billion in the previous fiscal year, as exploration ac tivities
decreased in regions other than the Americas (especially Brazil).

Selling, general and administrative expenses
Selling, general and administrative expenses decreased ¥0.6
billion, or 1.4%, to ¥44.3 billion for the year ended March 31,

Cost of sales

Operating income(¥million)(¥million)

500,000

800,000

Financial /Corporate Information

W hile the Japanese economy was headed toward a selfsustaining recovery during the year ended March 31, 2011, withimprovements in business earnings and a capital spending andsteady export performance, the recovery was hindered in the
middle of the year due to a slow-down of the export growthand other factors. Moreover, the Great East Japan Earthquake
in March 2011 triggered further concerns about the economic
prospect. Amid this business environment, the global crude oil
price that signiﬁcantly affects the Group's businesses, measured
by the closing price of WTI delivery, an important indicator for
crude oil price, started from US$84.87/bbl in the year. Although
the price had dropped below US$70/bbl at the end of May 2010
due to credit uncertainty in Europe triggered by the financial
crisis in Greece, the prices turned into upward since then. Pricesrose from summer 2010 to US$90/bbl around due to increasingin oil supply uncertainty caused by hurricane on the U.S. coastand strengthening of U.S. economic indicators. After the turnof the year, prices continued to rise due to growing tensions inNorth Africa and the Middle East from mid-February 2011, which
results in exceeding US$100/bbl in early March and closing at
US$106.72/bbl at the end of the year. Meanwhile, domestic crude
oil and petroleum products prices followed a pattern similar to
global oil price movements. Reﬂecting this situation, our Group’s
average crude oil selling price for the year ended March 31, 2011
was US$84.34/bbl, which was US$15.94 higher than that for theprevious year.
The foreign exchange market, another important factor

2010

714,2111,202,965

1,200,000

1,076,165

600,000

343,795

969,713

943,080

900,000

840,427

663,267

390,554400,000

319,038

300,000

334,833

559,077

529,743

298,168

461,668
400,000

600,000

200,000

300,000

100,000

200,000

0

0

0

2007

2008

2009

2010

2011

2007

2008

2009

2010

2011

2007

2008

2009

2010

2011

INPEX CORPORATION Annual Report 2011083

Depreciation and amortization
Depreciation and amortization increased ¥2.3 billion, or 11.2%,
to ¥22.3 billion for the year ended March 31, 2011, from ¥20.0
billion in the previous year. This increase was mainly due to anincrease in the depreciation of exploration and development
rights for the ACG oil ﬁelds, as well as increased depreciation in
relation to domestic pipelines. The Group records depreciation
costs for production facilities that are covered by concessionagreements as the cost of sales. In addition, under its accounting
treatment of the PSCs, the Group records capital expenditures
as “Recoverable accounts under production sharing” insteadof capitalizing these costs within tangible fixed assets anddepreciating them. Costs that are recovered in any given year
based on the terms of the PSCs are included in the cost of sales.

Other expenses
Other expenses for the year ended March 31, 2011 increased¥11.2 billion, or 27.3%, to ¥52.3 billion from ¥41.1 billion in
the previous year. This was mainly due to an increase in theprovision for allowance for doubtful accounts pertaining to thewithdrawal from the Azadegan oil ﬁeld in Iran and the provision
for allowance for recoverable accounts under production sharing.

Income taxes
Total current income taxes and deferred income taxes in theyear ended March 31, 2011 increased ¥43.6 billion, or 13.4%, to¥368.7 billion from ¥325.1 billion in the previous year. This was
mainly attributable to the increase in taxes paid overseas dueto the rise in overseas sales. The Group pays the majority of its
taxes outside Japan. In addition to the high corporate tax rates
imposed in a 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 has resulted in a high effective
income tax rate of 72.5% in the year under review.

Operating income

Minority interests

As a result of the above, operating income in the year ended
March 31, 2011 increased ¥68.0 billion, or 14.7%, to ¥529.7 billion
from ¥461.7 billion in the previous year.

Minority interests in the year ended March 31, 2011 increased¥1.5 billion, or 15.5%, to ¥11.2 billion from ¥9.7 billion in theprevious year.

Other income

Net income

Other income for the year ended March 31, 2011 increased ¥9.7
billion, or 45.2%, to ¥31.2 billion from ¥21.5 billion in the previous
year. This increase was mainly attributable to gain on transfer ofmining rights and an increase in equity in earnings of afﬁliates.

As a result of the above, net income for the year ended March
31, 2011 increased ¥21.5 billion, or 20.0%, to ¥128.7 billion from¥107.2 billion in the previous year.

FINANCIAL POSITION
Total assets as of March 31, 2011 increased ¥666.6 billion, or
33.1%, to ¥2,680.4 billion, from ¥2,013.8 billion as of March
31, 2010. Current assets remained flat at ¥492.9 billion due toa decrease in cash and cash equivalents and others, despite

an increase in accounts receivable—trade and others. Fixed
assets increased ¥666.5 billion, or 43.8% to ¥2,187.4 billion from
¥1,520.9 billion as of March 31, 2010, mainly due to an increase
in investment securities, tangible fixed assets and recoverable

accounts under production sharing.
Meanwhile, total liabilities as of March 31, 2011 increased¥59.8 billion or 11.4% to ¥583.0 billion from ¥523.2 billion asof March 31, 2010. Current liabilities increased ¥26.8 billion, or
11.8%, to ¥254.7 billion from ¥227.9 billion as of March 31, 2010,
due to an increase in income taxes payable and asset retirement
obligations. Long-term liabilities increased ¥33.0 billion, or
11.2%, to ¥328.3 billion from ¥295.3 billion due to an increase inlong-term debt and others.
Net assets increased ¥606.8 billion, or 40.7%, to ¥2,097.4

INVESTMENTS AND FUNDING

Net income

Total assets(¥million)

200,000

3,000,000

165,092

2,680,380

173,2462,500,000

145,063150,000

128,699

2,013,778

2,000,000

1,807,901
1,608,107

107,210

1,768,045

1,500,000

100,000

1,000,000
50,000500,000

Continuous exploration for new reserves of oil and natural gas
is essential to the Group’s earnings stability. The information inthis section on upstream oil and gas investments is based on
the data reported by project operators relating to exploration
ex penditures, development ex penditures and oper ating
expenses. The Group’s expenditure categories are defined asfollows:• 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 ofdevelopment drilling and any production facilities.
• Other expenditures include the costs of construc tingpipelines for domestic natural gas and Naoet su LNG
receiving terminal.
• Operating expenses include the costs of well operations,maintenance and the supervision of production activities.
This category also includes the administrative expenses forthe project (or contract area) if it contains a ﬁeld in active
production and/or development.

The table below shows the Group‘s exploration and development costs and other expenditures (excluding capitalized interests costs)
by segment for the years ended March 31, 2010 and 2011:(Millions of yen)Japan

INPEX CORPORATION and Consolidated Subsidiaries
Exploration¥ 2,997
Development
4,572
Subtotal*
7,569
Other expenditures
46,678
Total
54,247
Equity-method Affiliates
Exploration—
Development
—
Total
¥
—

Eurasia(Europe & NIS)

Middle East &AfricaAmericas¥ 19,386
108,276
127,66218
127,680¥ 2,032
66,042
68,074—68,074¥ 6,379
18,56324,942
1
24,943¥2,201
4,582
6,783
—
6,783

¥ 32,995
202,035
235,030
46,697281,727

—
1,219
1,219

—
—
—

481
1,422
¥ 1,903—
4,350¥4,350

481
6,991
7,472

Asia & Oceania

¥

¥

Total

¥

* Figures include equity-method affiliate of Japan Oil Development Co., Ltd. (JODCO).

0

0

2007

084

• Discrepancies exist between the standards stipulated in
U.S. FASB Accounting Standards Codification Topic 932,
“Extractive Industries—Oil and Gas (Topic 932)” and boththe Group’s definitions of exploration and development
expenditures and the standards used in preparing thefollowing tables. The following is a list, which is not limited
to, of discrepancies bet ween 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
on a cash basis, rather than an accrual basis as required by
Topic 932.
- The tables below have been prepared based on the costdeﬁnitions 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 ac tivities be
excluded from exploration and development expenditures,
while such administrative costs are not necessarily excluded
from those expenditures under the Group’s accounting
policies.

— Investments in upstream oil and gas projects

Year ended March 31, 2010(¥million)

billion as of March 31, 2011 from ¥1,490.6 billion as of March
31, 2010. Total shareholders’ equity increased ¥632.3 billion,or 45.8%, to ¥2,012.3 billion from ¥1,380.0 billion as of March
31, 2010, as common stock increased ¥260.8 billion and thecapital surplus increased ¥260.8 billion due to the issuance of
new shares. Total accumulated other comprehensive income
decreased ¥22.9 billion from March 31, 2010, to a loss of ¥15.4
billion from ¥7.5 billion, and minority interests decreased ¥2.6
billion, or 2.5%, to ¥100.5 billion as of March 31, 2011, from¥103.1 billion as of March 31, 2010.

Financial /Corporate Information

2011, from ¥44.9 billion in the previous year. This was due to adecrease in transport costs for ACG crude oil associated with adecrease in the sales volume, despite an increase in taxes leviedby East Timor in connection with the Bayu-Undan Project asincreased the oil price.

2008

2009

INPEX CORPORATION Annual Report 2011

2010

2011

2007

2008

2009

2010

2011

INPEX CORPORATION Annual Report 2011085

(Millions of yen)

Year ended March 31, 2011

Japan

Eurasia
Asia & Oceania(Europe & NIS)INPEX CORPORATION and Consolidated Subsidiaries
Exploration¥ 727
Development
3,741
Subtotal*
4,468
Other expenditures
21,225
Total
25,693Equity-method Affiliates
Exploration—
Development
—
Total
¥
—

Middle East &AfricaAmericasTotal¥ 18,847
97,080115,927—
115,927¥ 517
64,10864,625—64,625¥ 3,965
19,83023,795923,804¥ 8,474
2,270
10,744—
10,744¥ 32,530
187,029
219,559
21,234
240,793

—
385
385

—
—
—

355
650
¥ 1,005296
2,068¥ 2,364

651
3,103
3,754

¥

¥

¥

* Figures include equity-method affiliate of Japan Oil Development Co., Ltd. (JODCO).

Total expenditures for the year ended March 31, 2011 amounted to ¥240.8 billion. This represented a year-on-year decrease of ¥40.9
billion, or 14.5%, compared with the ¥281.7 billion in the previous year. This was mainly due to the decline in development expenditures
relating to the South Natuna Sea Block B and the Offshore Mahakam Block in the Asia and Oceania region, as well as a decrease ofother expenditures in the Japan region.
The table below shows the Group‘s operating expenses by segment for the years ended March 31, 2010 and 2011:(Millions of yen, %)Years ended March 31,

Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Total

2010
¥ 9,324
48,888
7,099
21,192
5,189¥91,692

2011
10.2%
53.3
7.7
23.1
5.7
100.0%¥ 8,534
44,911
4,409
20,084
3,332¥81,270

10.5%
55.3
5.4
24.7
4.1
100.0%— 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 March 31, 2010 and 2011:(Millions of yen)

Years ended March 31,

Balance at beginning of the year
Add: Exploration costs
Development costs
Operating expenses
Other
Less: Cost recovery—capital expenditures
Cost recovery—operating expenditures
Other
Balance at end of the year
Allowance for recoverable accounts under production sharing at end of the year

The table below shows the Group‘s expenditures for acquisitions of upstream oil and gas projects by segment for the years ended
March 31, 2010 and 2011. Expenditures in this category include the costs of acquiring mining rights, exploration and development
rights, signing bonuses and any tangible ﬁxed assets or recoverable accounts under production sharing gained through the acquisitionof interest in upstream oil and gas projects.

2011¥514,646
23,990120,997
43,8192,820
50,817
95,66525,459534,331¥ (96,880)

The amount posted as “cost recovery—operating expenditures”

decreased compared with the previous year due to the decrease

in recoverable accounts under production sharing is greaterin operating expenses for the Offshore Mahakam Block.

than that posted as operating expenses. Along with operating

Cost recovery for the year ended March 31, 2011, decreased

expenses, this is because a por tion of the exploration andcompared with the previous year. This was mainly due to thedevelopment cos t s, which are incur red and recover able

decrease in cost recovery in the the South Natuna Sea Block B.

within the year, is included in the “cost recovery—operating
expenditures” account.
E xploration cos t s for the year ended March 31, 2011,
increased compared with the previous year. This was mainly due
to the increase in exploration expenditures in Indonesia.

— Expenditures for acquisitions of upstream oil and gas projects

2010¥453,922
10,085
146,02854,9382,671
45,653
107,075270
514,646¥ (94,892)

In addition, other deductions to recoverable accounts under
production sharing were due to the elimination of recoverable
accounts related to block withdrawal.
The allowance for recoverable accounts under production
sharing as of the end of the year ended March 31, 2011, wasDevelopment costs for the year ended March 31, 2011,higher than the allowance as of the end of the previous fiscal

decreased compared with the previous year. This was mainly

year. This was largely due to additional allowance provisions

due to the decreases in development expenditures in the Southin connection with the increase in recoverable accounts underNatuna Sea Block B and the Offshore Mahakam Block, despite

production sharing with respect to exploration expenditures in

an increase in those for the ACG oil ﬁelds.

Indonesia.

Operating expenses for the year ended March 31, 2011,(Millions of yen, %)INPEX CORPORATION and Consolidated Subsidiaries
Asia & Oceania¥292
Eurasia (Europe & NIS)—
Middle East & Africa
384
Americas
15
Total
691
Equity-method Affiliates—
Asia & Oceania
Middle East & Africa——
Americas
¥ —
Total

2010

2011
42.2%
—
55.6
2.2
100.0
—
—
—
—%

¥
—
28,446——28,446¥————— Funding sources and liquidity
—%
100.0
—
—
100.0
—
—
—
—%

Total expenditures on acquisitions of upstream oil and gas projects in the year ended March 31, 2011 increased ¥27.7 billion to ¥28.4
billion, from ¥0.7 billion in the previous year due to increase in outlays in the Eurasia region.

086

INPEX CORPORATION Annual Report 2011

Oil and natural gas exploration and development projects asbanks provide loans for the construction and expansion ofwell as the construction and expansion of domestic pipelines,

domestic pipelines and LNG receiving terminals; ¥520.0 billion

LNG receiving terminals and other supply infrastructure, require

was raised through an equity offering conducted for the year

signiﬁcant funding. The Group relies on cash ﬂow derived fromended March 31, 2011. We are also looking into funding theinternal reserves, together with external sources, to procure

Ichthys Project through project ﬁnance.

funds. The Group’s basic policy is to utilize internal cash ﬂow and

The Group’s basic liquidity policy is to maintain sufﬁcient cash

external equity financing to fund exploration projects and toon hand at all times to fund expenditures for existing and new oilutilize internal cash ﬂow and external loans to fund development

and natural gas projects in a timely manner, while also keeping a

projects, pipeline construction and the LNG receiving terminal.

cushion of liquidity to provide for steep falls in oil and gas prices.

The Group currently receives joint ﬁnancing from the Japan Bank

In line with this policy, excess cash reserves are invested in low-for International Cooperation and Japanese commercial banks.

risk, highly liquid ﬁnancial instruments. The Group’s strategy is to

The Japan Oil, Gas and Metals National Corporation (JOGMEC)

improve capital efﬁciency over the long term through businessguarantee system covers this joint financing. In addition, theexpansion while continuing to maintain a sound ﬁnancial position

Development Bank of Japan and various Japanese commercial

with sufﬁcient liquidity.

INPEX CORPORATION Annual Report 2011

Financial /Corporate Information

Years ended March 31,087

Business Risks

The following is a discussion on key items that can be considered potential risk factors relating to the business of INPEX— Maturities of long-term debt

CORPORATION and its consolidated subsidiaries (the “Group”). From the standpoint of information disclosure to investors and

The aggregate annual maturities of long-term debt subsequent to March 31, 2011 are summarized as follows:

shareholders, we proactively disclose matters that 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(Millions of U.S. dollars and yen)Group’s business.

Years ending March 31,

2012
2013
2014
2015
2016
2017 and thereafter
Total

U.S. dollars

$

—
—
—
—
—
2,286.8$2,286.8

Yen

Total yen equivalent¥ 4,281
4,662
3,757
5,609
5,128
59,405¥82,842

¥

4,281
4,662
3,757
5,609
5,128
249,550¥272,987— Cash ﬂows
Cash ﬂows for the years ended March 31, 2010 and 2011 are summarized as follows:(Millions of yen)

Years ended March 31,

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

Net cash provided by operating activities
Net cash provided by operating activities in the year ended
March 31, 2011, totaled ¥274.1 billion, an increase of ¥32.7 billion
from the ﬁgure for the previous year of ¥241.4 billion. This wasdue to the increase in net income before income taxes andminority interests caused by the rise in the unit prices for crude
oil and natural gas.

2010
¥ 241,373(251,812)
68,937¥ 216,395

2011¥ 274,094(844,511)
548,057¥ 182,025

decrease in investment in recoverable accounts under production
sharing (capital expenditures).

Net cash provided by ﬁnancing activities
Net cash provided by financing activities in the year ended
March 31, 2011, was ¥548.1 billion, an increase of ¥479.2 billion
from ¥68.9 billion posted for the previous year. This primarily
reﬂects proceeds from issuance of common stock.

Net cash used in investing activities
Net cash used in investing activities in the year ended March
31, 2011 increased ¥592.7 billion to ¥844.5 billion from ¥251.8
billion in the previous year. This was mainly due to an increasein payments for purchases of investment securities despite a

CONSOLIDATED FINANCIAL FORECASTS FOR THE YEARENDING MARCH 2012 (Announced on August 3, 2011)
Consolidated net sales for the year ending March 31, 2012,
are forecast to increase ¥114.9 billion, or 12.2%, to ¥1,058.0
billion. Operating income for the year is expected to increase¥67.3 billion, or 12.7%, to ¥597.0 billion with net income before
corporate income taxes and minority interests forecast to
rise ¥76.4 billion, or 15.0%, to ¥585.0 billion. Net income isanticipated to rise ¥11.3 billion, or 8.8%, to ¥140.0 billion.
Net sales are expected to grow as expected oil price to behigher than the previous year. Accordingly, operating income,income before income taxes and minority interests, and net
income are also expected to increase.
The aforementioned forecasts are based on an average oil
price of US$100.5/bbl for the Brent crude benchmark and an
average exchange rate of ¥80.4 against the U.S. dollar for theyear ending March 31, 2012.

Unless stated otherwise, forward-looking statements in the discussion are the judgment of the Group as of June 29, 2011 and are
subject to change after such date due to various factors, including changes in social and economic circumstances.

1. CHARACTERISTICS OF AND RISKS ASSOCIATED WITH THE
OIL AND GAS DEVELOPMENT BUSINESS(1) Risk of failure in exploration, development or
production
Payment of compensation is ordinarily necessary to acquire
blocks and acreages. Also, surveying and exploratory drilling
expenses (exploration expenses) become necessar y at thetime of exploration activities for the purpose of discoveringresources. When resources are discovered, it is necessary tofurther invest in substantial development expenses according tovarious conditions, including the size of the recoverable reserves,development costs and details of agreements with oil-producing
countries (including gas-producing countries; hereinafter thesame shall apply).
There is, however, no guarantee of discovering resources
on a scale that makes development and production feasible.
The probability of such discoveries is considerably low despite
various technological advances in recent years, and even whenresources are discovered the scale of the reserves does notnecessarily make commercial produc tion feasible. For thisreason, the Group conservatively recognizes expenses related
to exploration investment, maintaining financial soundness bybooking 100% as expenses in consolidated ﬁnancial statementsin the case of concession agreements (including mining rights
awarded in 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 development
investment in a project, we also book the corresponding amountof development expenses as allowances in accordance with thecircumstances of each project.
To increase recoverable reserve and production volumes,
the Group always takes interest in promising properties andplans to continue exploration investment. At the same time,
we invest in development projects, including the acquisitionof 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 theacquisition of interests) are necessary to secure the reserves
essential to the Group’s future sustainable business development,each type of investment involves technological and economic
risks, and failed exploration or development investment could
have an adverse effect on the results of the Group’s operations.

(2) Oil, condensate, LPG and natural gas reserves
1) Proved reserves
INPE X CO R P O R AT I O N (t h e “C o m p a ny ” ) c o m mi s s i o n e d

088

INPEX CORPORATION Annual Report 2011

DeGolyer and MacNaughton, an independent petroleum
engineering consultant in the United States, to assess the proved
reserves of the Group of which projects with a signiﬁcant amountof future development investment might materially affect future
performance. An assessment of other projects was undertakenby the Company. The definition of proved reserves is basedon the U.S. Securities and Exchange Commission’s Regulation
S-X, Rule 4-10(a), which is widely known among U.S. investors.
Notwithstanding the use in evaluation of either the deterministic
or probabilistic approaches, proved oil and gas reserves are
estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable fromknown reser voirs under existing economic and operating
conditions, from the date of evaluation through to the expiration
date of the agreement granting operating rights (or in the eventof evidence with a reasonable certainty of agreement extension
through to the expiration of the projected extension period).
For definition as “proved reser ves,” operators must have areasonable degree of certainty that the recovery of hydrocarbons
has commenced or that the project will commence 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.
For f ur t her det ails on proved reser ves of cr ude oil,condensate, LPG and natural gas held by the Group, including
afﬁliates accounted for under the equity method, please see thesection “Oil and Gas Reserves and Production Volume” on P. 97.

2) Probable reserves and possible reserves
In addition to the assessment of proved reser ves based on
the SEC standards, the Company commissioned DeGolyer
and MacNaughton to assess its probable reser ves and thepossible reserves of which projects with a significant amountof future development investment might materially af fec t
the future per formance. An assessment of other projec t s
was under taken by the Company. based on the Petroleum
Resources Management System 2007 (PRMS) published by fourorganizations: the Society of Petroleum Engineers (SPE), theWorld Petroleum Congress (WPC), the American Associationof Petroleum Geologists (AAPG), and the Society of Petroleum
Evaluation Engineers (SPEE). Probable reserves, as defined by
the four organizations, are reserves outside proved reserves thatare less likely to be recovered than proved reserves but morecertain to be recovered than possible reserves based on analysesof geological and engineering data. In this context, when

INPEX CORPORATION Annual Report 2011

Financial /Corporate Information

Long-term debt denominated in

089

3) Possibility of changes in reserves
A reserve evaluation depends on the available geological andengineering data from oil and gas reservoirs, the maturity ofdevelopment plans and a considerable number of assumptions,factors and variables including economic conditions as of thedate such an estimate is made. Reserves may be revised in the
future on the basis of geological and engineering data as well
as development plans and information relating to changes in
economic and other conditions made newly available throughprogress in production and operations. As a result, there is apossibility that reserves will be restated upwards or downwards.
As to the reserves under a PSC, not only production, but also
oil and gas prices, investments and cost recoveries as well as
remuneration fees may affect the economic entitlement. Thismay cause reserves to increase or decrease. In this way, reserves
could fluc tuate because of various data, assumptions andchanges of deﬁnition.

(3) In the oil and natural gas development businessthe period from exploration to sales is highly capitalintensive and funds cannot be recovered for a longtime
Considerable time and expense is required for explorationac tivities. Even when promising resources are discovered
through exploration, substantial expenses including production
facility construction costs, and an extended period of time, arenecessary at the development stage leading up to production.
For this reason, a long period of 10 years or more is required
from the time of exploration and development investment
until the recovery of funds through production and sales. In
particular, the development of the Ichthys and the Abadi, large-

090

INPEX CORPORATION Annual Report 2011

scale LNG projects, being pursued by the Company requiresa very large amount of investment, and the financing of theseprojects could be impacted by changes in the economic andfinancial environment. Following the discovery of resources,in the development process leading up to production and thecommencement of sales, the occurrence of events such as adelay in the acquisition of government approvals or a delay in thedevelopment schedule or the loss of the economic viability of theproperties due to factors such as unanticipated problems related
to geological conditions or ﬂuctuations in the price of oil or gas,fluctuations in foreign exchange rates, or other changes in thebusiness environment, including escalating prices of equipment
and materials, or in the case of LNG projects, an inability tocomplete such procedural requirements as FID owing to thelack of any long-term contractual agreement with prospective
purchases with respect to production, could have an adverse
affect on the Group’s operational results.

(4) Operatorship
In the oil and gas development business, companies frequently
form business partnerships for the purpose of the dispersionof 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 behalfof the partners. The companies other than the operator, as
non-operators, par ticipate in the business by providing apredetermined amount of funds and either carefully examining
the exploration and development plan devised and implemented
by the operator, or participating in some operations.
The integration of INPEX CORPORATION and Teikoku OilCo., Ltd., was completed on October 1, 2008. The resultant
company possesses abundant operational capabilities thanks
to the amalgamation of the former two companies’ extensive
experience and know-how in exploration, development andproduction both within Japan and overseas as well as their highlevel proprietary technologies.
The Group intends to actively pursue operator projects
focusing on the two large-scale LNG Ichthys and Abadi projects
taking into consideration the effective application of businessresources as well as the balance between operator and nonoperator projects, based on the Group’s technical capability,
which has been considerably enhanced by the above-statedbusiness integration. Although the Company lacks operator
experience in LNG development projects, it has significant
expertise as an operator in the development and productionof crude oil and natural gas both in Japan and overseas as well
as a wealth of know-how and knowledge accumulated overmany years as a participant in LNG and other projects in suchcountries as Indonesia and Australia. In addition, we believe thatby 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 executebusiness appropriately as an operator.
Engaging in projec t coordination as an operator willcontribute to the expansion of oppor tunities of block andacreage acquisition through enhancement of technologicalcapabilities and greater presence in oil-producing countries

and the industry. At the same time, there exist risks such as
constraints on the recruitment of personnel who have specialized
operational skills and an increase in ﬁnancial burden. Inability toadequately cope with such risks could have an adverse effect on
the Group’s results of operations.

(5) Project partners
In t he oil and gas d evelo p ment b usines s, as previously
mentioned, several companies often engage in joint businessfor the purpose of dispersion of risk and financial burden. In
such cases, 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
that is a partner in one property in which the Group is engaged
in joint business may become a competitor in the acquisition ofother blocks and acreages, even though the relationship with thepartner may be good.
In undertaking the joint business, participants in principle
bear a ﬁnancial burden in proportion to their interest share. Any
inability by a joint business partner to fulﬁll this ﬁnancial burden
may adversely affect the project.

(6) Disaster and accident risks
Oil and gas development entails the risk that operational
accidents and disasters may occur in the process of exploration,
development, production and transportation. Should such an
accident, disaster or other such incident occur, there is the riskthat costs will be incurred, excluding compensation covered byinsurance, due to facility damage, as well as the risk of a major
accident involving loss of life. In addition, a cost burden forrecovery or opportunity loss from the interruption of operations
could occur. For the domestic natural gas business, the Company

has continued to procure natural gas regasiﬁed from imported
LNG since January 2010 to supplement its traditional supplies
of natural gas produced in Japan. An inability to procure natural
gas regasiﬁed from imported LNG due to an accident, disasteror incident at city gas companies that supply the source ofpurchases may interfere with the Company’s ability to supply to
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 andEnvironment Policy,” and as a matter of course abides by theenvironmental laws, regulations, and standards of the countries inwhich we operate and give due consideration to the environment
in the conduct of business, based on our independent guidelines.
Nevertheless, in the event of an operating accident or disasterthat for some reason exerts an impact on the environment, a
response or necessary cost burden for recovery or loss fromthe interruption of operations could occur. Furthermore, in theevent of changes to or the strengthening of the environmental
laws, regulations, and standards (including support measures forthe promotion of new, renewable energies) of the countries inwhich we operate, it may be necessary for the Group to devise
additional measures, and an associated cost burden could occur.
Although the Group maintains accident insurance in thenatural conduct of its operations, should such an accident ordisaster be attributable to willful misconduct or negligence on
the part of the Group, the occurrence of a cost burden could
have an adverse affect on ﬁnancial results. Also, such accident
or trouble would result in receiving administrative punishment or
result in damage to the Group’s credibility and reputation as anoil and gas development company, and could therefore have an
adverse affect on future business activities.

2. EFFECTS OF FLUCTUATIONS IN CRUDE OIL PRICES, NATURALGAS PRICES, FOREIGN EXCHANGE AND INTEREST RATES ON
FINANCIAL RESULTS(1) Effects of ﬂuctuations in crude oil prices and natural
gas prices on ﬁnancial results
Crude oil prices and a large percentage of natural gas prices
in overseas businesses are determined by international market
conditions. In addition, those prices fluctuate significantly inresponse to the inﬂuence of a variety of factors including global
or local supply and demand as well as trends and conditionsin the global economy and ﬁnancial markets. The vast majorityof these factors 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 priceﬂuctuations. Such effects are highly complex and are caused by
the following factors.
1) 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 arebooked, actual crude oil transaction prices and the averageoil price during the accounting period do not necessarily
correspond.
For the domestic natural gas businesses, the Company has
continued to purchase natural gas regasiﬁed from imported LNG
as a raw material in addition to natural gas produced in Japan

Financial /Corporate Information

probabilistic methods are employed, there should be at least a
50% probability that the quantities actually recovered will equalor exceed the sum of estimated proved and probable reserves.
In addition, possible reserves are also defined in accordancewith PRMS guidelines. In specific terms, possible reserves area part of those reserves not categorized as proved reserves orprobable reserves. Possible reserves refer to oil and gas volumes
that are less likely to be recovered than probable reserves basedon analyses of geological and engineering data. In this case,
it is unlikely that the actual quantity of oil and gas recovered
will exceed the sum of proved reserves, probable reserves andpossible reserves. Furthermore, when probabilistic methods
are employed to calculate possible reserves, there should be
at least a 10% probability that the quantities recovered will
equal or exceed the sum of proved reserves, probable reserves
and possible reserves. Probable reserves can be upgraded toproved reserves after the addition of new technical data, under
different economic conditions, and with advances in operational
conditions. Never theless, probable reser ves do not offer aguarantee of the production of total reserves during a future
production period with the same certainty as proved reserves.
For fur ther details on probable reser ves of crude oil,condensate, LPG and natural gas held by the Group, including
afﬁliates accounted for under the equity method, please see thesection “Oil and Gas Reserves and Production Volume” on P. 97.

since January 2010. The price of the Company’s natural gas
sold in Japan is comprised of a ﬁxed price portion as well as a
portion that reﬂects ﬂuctuations in the price of imported LNG.
In addition to the direct impact of trends in the market prices of
LNG and competing energy sources on that portion that reﬂects
ﬂuctuations in the price of imported LNG, contract negotiations
held each ﬁscal year with end purchasers could have an indirect

INPEX CORPORATION Annual Report 2011091

reason, the exchange risk associated with the above businessis diminished and the impact of fluctuations in exchange rates(2) The effect of ﬂuctuations in exchange rates on
ﬁnancial results

on profit and loss tends to be mitigated. Moreover, although

As most of the Group’s business consists of E&P conducted
overseas, associated revenues (sales) and expenditures (costs) aredenominated in foreign currencies (primarily in U.S. dollars), andproﬁt and loss is subject to the effects of the foreign exchange
market. In the event of appreciation in the value of the yen, yendenominated sales and proﬁts decrease. Conversely, in the eventof depreciation in the value of the yen, yen-denominated sales
and proﬁts increase.
On the other hand, when borrowing necessar y funds,
the Company borrows in foreign currencies. In the event ofappreciation in the value of the yen, a foreign exchange gain on
foreign-currency denominated borrowings is recorded as a resultof ﬁscal year-end conversion; in the event of depreciation in thevalue of the yen, a foreign exchange loss is incurred. For thisassociated with movements in foreign currency exchange rates

the Company is taking measures to reduce a portion of the risks
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.

(3) The effect of ﬂuctuations in interest rates on
ﬁnancial results
The Group raises some of the funds necessary for explorationand development operations through borrowing. Much ofthese borrowings are with variable-rates, long term borrowings
based on the U.S. dollar six months LIBOR rate. Accordingly, theCompany’s proﬁts are subject to the inﬂuence of ﬂuctuations in
U.S. dollar interest rates.

3. OVERSEAS BUSINESS ACTIVITIES AND COUNTRY RISKThe Group engages in a large number of oil and gas
development projects overseas. Because the Group’s businessactivities, including the acquisition of blocks and acreages, areconducted on the basis of contracts with the governments ofoil-producing countries and other entities, steps taken by oilproducing countries to further tighten controls applicable tohome country natural resources, suspension of operation by
conflicts and other factors, changes in the political, economic,
and social circumstances in such oil-producing countries orneighboring countries (including government involvement,
stage of economic development, economic growth rate, capital
reinvestment, resource allocation, restric tion of economic
activities by global community, government control of foreignexchange 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 of thosecountries (including the establishment or abolition of laws or
regulations and changes in their interpretation or enforcement)
could have a signific ant impac t on the Group’s busines sor results unless the impact is compensated by insurance.
Additionally, against the background of rising development
costs and other changes in the business environment, theprogress of oil and gas projects, and the need to addressenvironment al is sues, the gover nment s of oil- producing
countries may seek to renegotiate the ﬁscal conditions including
conditions of existing oil contrac ts related to blocks andacreages. In the event that the ﬁscal conditions of contracts were
to be renegotiated, this could have an adverse effect on theGroup’s business performance.

4. DEPENDENCE ON SPECIFIC GEOGRAPHICAL AREAS OR
PROPERTIES(1) Production volume
The Group engages in stable production of crude oil and natural
gas in the Offshore Mahakam Block (Indonesia), the ADMA Block(United Arab Emirates), the Minami Nagaoka Gas Field (Japan)
and so on. Through a process of business integration, the Group
had established a wide ranging, diversiﬁed yet balanced portfoliothat encompassed the Asia-Oceania regions (particularly Japan,
Indonesia, and Australia), the Middle East and Africa, Eurasia
including Caspian Sea area and the Americans. As of ﬁscal 2010,
however, the Asia and Oceania regions accounted for about
50% of the Group’s production volume, and the Middle East andAfrica accounted for about 32% making up the vast majority of
the Group’s operations. Looking ahead, the Group will endeavor

092

INPEX CORPORATION Annual Report 2011

to further enhance the balance of its asset portfolio on a regional
basis.
However, the Group relies heavily on speciﬁc geographicalareas and proper ties for it s produc tion volume, and theoccurrence in these properties of an operational problem or
difﬁculty could have an adverse effect on the Group’s operational
results.

(2) Principal business areas and contract expiration
dates
Expiration dates are customarily stipulated in the agreements
related to blocks and acreages, which are prerequisites for theGroup’s overseas business activities. Although March 30, 1997

was the initial contract expiration date in the production sharing
agreement for the Offshore Mahakam Block of Indonesia, theGroup’s principal geographical business area, an extension wasapproved in 1991, and the current expiration date is December
31, 2017. On the basis of the concession agreement for the
ADMA Block, the concession expiration date is March 8, 2018.
(However, the expiration date for the Upper Zakum Oil Field
has been extended to March 8, 2026.) Although the Groupplans to make efforts together with partners to further extend
these agreements, inability to re-extend the agreements or
unfavorable contract terms and conditions at the time of reextension could have an adverse effect on the Group’s results.
Even should the agreements be reextended, we anticipate thatremaining recoverable reserves may decrease at the time of reextension. Although the Group is striving to acquire intereststhat can substitute these properties, failure to acquire properties
to fully substitute for these properties could have an adverse
effect on the Group’s results.
In addition, in the event that 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 foundthat are deemed to be commercialized, and the Company isunable to decide on the transition to the development stage
by the expiration of the current contract, efforts will be madethrough negotiations with the government of the oil- or gasproducing country in question to have the periods extended.
However, there remains the possibility that such negotiations
may not be successfully concluded, in which 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 forthe other party to have the right to cancel the agreement before
the expiration date. The agreements for properties in theseprincipal geographical business areas contain similar provisions.
The Group has never experienced early cancellation of anagreement due to breach of contract, and we do not anticipate
such an occurrence in the future. Nevertheless, a major breachof contract on the part of a party to an agreement could result incancellation of an agreement before the expiration date. And in
the overseas gas development and production activities, in manycases we are selling and supplying gas based on long-term sales
and supply contracts in which expiration dates are stipulated.
We plan to make efforts with partners to extend or re-extend theexpiration date. Nevertheless, inability to extend the contracts,or the occurrence of cases in which extension is made but sales
and supply volumes are reduced, could have an adverse effecton the Group’s business or results.

5. PRODUCTION SHARING AGREEMENTS(1) Details of production sharing agreements
The Group has entered into production sharing agreements withcountries including Indonesia and Caspian Sea area.
Production sharing agreements are agreements by which
one or several oil and gas development companies serve ascontractors that undertake at their own expense explorationand development work on behalf of the governments of oilproducing countries or national oil companies and receive
production from the projects as cost recovery and compensation.
That is to say, when exploration and development work resultsin the production of oil or gas, the contractors recover the
exploration and development costs they incurred by means of ashare in the production. The remaining production (crude oil andgas) 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.” In the case of gas in Indonesia, as sales are
conducted by Indonesia, the contractors receive cost recovery
and proﬁt gas in the form of cash.) 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
agreements
When a company in the Group owns participating interests under
production sharing agreements, as mentioned above, in the roleof contractor it invests technology and funds in the explorationand development of the proper t y, recovers the inves ted
costs from the production produced, and receives a share of
the remaining production after recovery of invested costs ascompensation.
C o s t s i nve s te d o n t h e b a s i s of p r o d u c t i o n s h a r i n g
agreements are recorded on the balance sheet as assets forwhich future recovery is anticipated under the balance sheet item
“Recoverable accounts under production sharing.” After the startof production, recovered costs on the basis of those agreements
are deducted from this balance sheet item.
A s produc tion received under produc tion sharing
agreements is divided into the cost recovery portion and thecompensation 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 costof received production, and subsequently the amount of thecompensation portion is calculated and this amount is booked as
an adjustment item to cost of sales (“Free of charge production
allocated”). Consequently, only the cost recovery portion of
production after deduction of the compensation por tion isbooked as cost of sales.

INPEX CORPORATION Annual Report 2011

Financial /Corporate Information

affect on the ﬁxed price portion.

093

6. Relationship with the Japanese Government
Although the government of Japan (the Minister of Economy,
Trade and Industry) holds 18.94% of the Company’s commonshares issued and a special-class share as of June 29, 2011,
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 believethat no such relationship will develop in the future. Furthermore,
there is no concurrent posting or secondment to the Company ofofficers or employees from the Japanese government.

(2) Ownership and sale of the Company’s shares by theJapanese government (the Minister of Economy, Tradeand Industry)
The Japanese government (the Minister of Economy, Trade andIndustry) holds 18.94% of the shares of the common stock issued
by the Company. For this reason, it is possible that in the future
the Minister of Economy, Trade and Industry, in accordancewith the purport of the after-mentioned Report, may sell off
the Company’s shares in Japan or overseas. This could have an
impact on the market price of the Company’s shares.
The Minister of Economy, Trade and Industry holds one
share of the Company’s special-class share. The Minister of
Economy, Trade and Industry, as the holder of the special-classshare, has veto rights over certain resolutions of the Company’s
general shareholders’ meetings and meetings of the Board of
Directors. For details on the special-class share, please refer tosection 8 “Special-Class Share” below.

7. Treatment of shares of the Group’S projectcompany owned by Japanese government and
JOGMEC(1) Treatment of shares of the Group’s projectcompany owned by Japan National Oil Corporation(JNOC)
With regard to the liquidation and disposition of the oil andgas upstream assets owned by JNOC, which was dissolved on
April 1, 2005, the Policies 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 Evaluationand Liquidation Deliberation Subcommittee of the Advisory
Committee on Energy and Natural Resources, an advisory bodyof the Ministry of Economy, Trade and Industry.
I n t h e Re p o r t , I N PE X CO R P O R AT I O N ( p r i o r t o t h e
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 realizationof a stable supply of energy for Japan through the involvement
by a national flagship company. In response to the Report, theCompany has sought to promote efficient realization of a stablesupply of energy for Japan while taking advantage of synergy
with the efforts of active resource diplomacy on the part of theJapanese 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 oftransfer of shares held by JNOC proposed in the Report, INPEXCORPORATION and JNOC concluded the Basic Agreement
Concerning the Integration of Assets Held by JNOC into INPEXCORPORATION 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 of094

INPEX CORPORATION Annual Report 2011

Assets Held by JNOC into INPEX CORPORATION (hereinafter
the “Basic Contract”), achieving the agreement on the details
including the treatment of the project companies subject to theintegration and shareholding ratios.
I n 2 0 0 4 I N P E X C O R P O R AT I O N a c c o m p l i s h e d t h e
integration of Japan Oil Development Co., Ltd. (JODCO), INPEXJava Ltd. (disposal was completed on September 30, 2010) and
INPEX ABK, Ltd. which are three of four companies covered by
the Basic Agreement. Although INPEX Southwest Caspian Sea
Ltd. (hereinafter“INPEX Southwest Caspian”) would become awholly owned subsidiary of INPEX CORPORATION by means of ashare exchange and the procedures were undertaken, the shareexchange contract was invalidated owing to failure to accomplish
the terms and conditions of the share exchange contract and theplanned share exchange was cancelled. Following the dissolutionof JNOC on April 1, 2005, the Minister of Economy, Trade andIndustry succeeded to the INPEX Southwest Caspian shares held
by JNOC. The Company continues to study the possibility toacquire the shares. However, the future treatment of these sharesis undecided and acquisition of INPEX Southwest Caspian shares
could be unavailable.
The treatment of Sakhalin Oil and Gas Development Co., Ltd.
(here in after “SODECO”), INPEX Offshore North Campos, Ltd.,INPEX North Makassar, Ltd. (liquidation proceedings completed
on December 19, 2009), INPEX Masela, Ltd., and INPEX North
Caspian Sea, Ltd. Was agreed between INPEX CORPORATION
and JNO C in t he MOU of Fe b r uar y 5, 20 0 4. Re garding
the treatment of shares of SODECO, refer to the section “(2) Treatment of shares of Sakhalin Oil and Gas Development
owned by the Japanese government” below. With regard to thetransfer to INPEX CORPORATION of the shares in the above
project companies other than SODECO, it was decided that theshares are to be transferred for cash compensation as soon as

prerequisites such as the consent of the oil-producing country
and joint venture partners and the possibility of appropriate
asset evaluations are in place. However, the transfer of shares
held by JNOC in the above companies has not been decided andthe shares in the above 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 Nor th Makassar, Ltd., to which the
Minister of Economy, Trade and Industry succeeded. JOGMEC
states in its “medium-term objective” and “medium-term plan”
that the shares succeeded to from JNOC will be disposed ofin an appropriate manner, but the timing and manners of thedisposal have not been decided, and it is possible that theCompany will be unable to acquire the shares.

(2) Treatment of the shares of Sakhalin Oil and Gas
Development (SODECO) owned by the Japanese
government
The Japanese government (the Minister of Economy, Tradeand Industr y) owns 50% shares of SODECO. SODECO wasestablished in 1995 to engage in an oil and 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 Statesis the operator. This project started production in October
2005. Furthermore, there is a plan for additional development
operations (Phase 2) for the purpose of the full-scale productionof natural gas. The Company holds a 5.74% of SODECO sharesissued and outstanding.

In the previously mentioned Report, SODECO, along withINPEX CORPORATION and JODCO, has been identified as acompany that should comprise part of a core company in Japan’s
oil and gas upstream industry in the future.
In accordance with the Report, it is assumed that private
sec tor shareholders, including INPEX CORPOR ATION, will
acquire shares of SODECO issued and outstanding to which the
Minister of Economy, Trade and Industry succeeded and thatwere previously held by JNOC (50.0%). The Company plans tohold a maximum of 33% of the SODECO shares to become its
largest shareholder. In the event that the consent of SODECO’s
joint-venture par tner s, the relevant Rus sian gover nment
entity, or other parties is necessary for the acquisition of theshares, obtaining the consent is a prerequisite for acquisition.
In addition, it will be necessary to reach agreement on theshareholder 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 ownershipinterest in oil and 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 andwill be realized. Also, even in the event that the acquisition isrealized, the conditions and time of acquisition are undecided
and the acquisition by the Company could be unavailable.

8. Special-Class Share(1) Overview of the special-class share
1) Reason for the introduction
The Company was established as the holding company througha stock transfer between INPEX CORPORATION and Teikoku
Oil Co., Ltd. on April 3, 2006. Along with this, a classified shareoriginally issued by INPEX CORPORATION (prior to the merger)
was transferred and at the same time the Company issued aclassified share with the same effect (hereinafter the “specialclass share”) to the Minister of Economy, Trade and Industry.
The classified share originally issued by INPEX CORPORATION
was the minimally required and a highly transparent measure
to eliminate the possibility of management control by foreign
capital while not unreasonably impeding the efficiency andflexibility of management based on the concept in the Reportdiscussed in the above section 7. INPEX CORPORATION is
identified as a company that should comprise part of a corecompany for Japan’s oil and gas upstream industr y and is
expected to play a role in efficient realization of a stable supplyof energy for Japan as a national flagship company. On the basisof the concept of the Report, the Company issued the specialclass share because it can be considered an effective means ofpreventing risks such as a speculative hostile takeover.

2) Shareholders’ meeting resolutions, dividends, distributionof residual assets, and redemption
Unless otherwise provided by laws or ordinances, the specialclass share does not have any voting rights at the Company’s
general shareholders’ meetings. The holder of the specialclass share will receive the same amount of dividends, interim
dividends, and distributions of residual assets as a holder ofcommon stock. The special-class share will be redeemed byresolution of the Board of Directors of the Company if the holderof the special-class share requests redemption or if the specialclass share is transferred to a party other than the government ofJapan or an independent administrative body that is fully fundedby the government of Japan.

Financial /Corporate Information(1) The Company’s relationship with the Japanese
government3) Veto rights in the Articles of Incorporation
The Ar ticles of Incorporation of the Company provide thatan approval resolution of the meeting of the holder of thespecial-class share is necessary in addition to resolutions of theCompany’s general shareholders’ meetings and resolutions ofmeetings of the Board of Directors for the decisions on certain
impor tant mat ters such as the appointment or removal of
Directors, disposition of material assets, changes to the Articles
of Incorporation, business integration, capital reduction orcompany dissolution in connection with the business of the

INPEX CORPORATION Annual Report 2011095

Oil and Gas Reserves and Production Volume

1. Oil and Gas Reserves

4) Criteria for the exercise of veto rights provided in theguidelines
Guidelines concerning the exercise of the veto rights havebeen established in a Ministry of Economy, Trade and Industry
Notice (No. 220, 2008) (hereinafter the “Notice”). The guidelines
stipulate the exercise of veto rights only in the following specificcases.
• 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 ofenergy to Japan.
• When resolutions pertaining to disposition of material assets
are not voted down and the objects of disposition are oil andgas exploration or production rights or rights similar thereto
or shares or ownership interest in the Company’ subsidiary
whose principal assets are said rights and it is judged thatthe 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 ofenergy to Japan.
• When resolutions pertaining to amendments to the Company’s
Articles of Incorporation relating to changes in the Company’sbusiness objectives, capital reduction, or dissolution are notvoted down and it is judged that the probability is high that
the Company will engage in management inconsistent withthe 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 thespecial-class share.
It is provided that the above guidelines shall not be limited in theevent that the Notice is changed in the light of energy policy.

(2) Risk in connection with the special-class share

Proved reserves

Although the special-class share was issued as a minimallyrequired measure to eliminate the possibility of management
controlled by foreign capital while not unreasonably impeding
the efficiency and flexibility of management, anticipated risks inconnection with the special-class share include the following.

T h e f o ll o w i n g t a b l e s li s t t h e p r ove d r e s e r ve s of c r u d eoil,condensate, LPG and natural gas of our company, ourconsolidated subsidiaries and equit y method af filiates on
main project. Disclosure details applicable to proved reserves
are presented in accordance with the rules and regulations
stipulated by the U.S. Financial Accounting Standards Board,

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
guidelines provided in the Notice. As the guidelines have been
provided from the standpoint of efficient realization of a stablesupply of energy to Japan, it is possible that the exercise of theveto rights by the Minister of Economy, Trade and Industry could
conflict with the interest of other shareholders who hold theCompany’s common shares. Also, it is possible that the above
guidelines could be changed in the light of energy policy.
2) Impact of the exercise of veto rights on the price ofshares of common stock
As mentioned above, as the holder of the special-class share has
the veto rights over certain important matters in connection withthe business of the Company, the actual
exercise of the veto rights over a certain matter could have an
impact on the price of the Company’s shares of common stock.
3) Impact on the Company’s degree of freedom in businessand business judgment
As the Minister of Economy, Trade and Industr y holds the
special-class share with the previously mentioned veto rights,
the Company needs a resolution of the meeting of the holderof the special-class share concerning the above matters. For
this reason, the Company’s degree of freedom in managementin those matters could be restricted by the judgment of the
Minister of Economy, Trade and Industry. Also, attendant on theneed for a resolution of the meeting of the holder of the specialclass share concerning the above matters, a cer tain periodof time is required for procedures such as the convening andholding of meetings and resolutions and for the processing offormal objections, if necessary.

9. Concurrently Serving Outside Directors
As of June 29, 2011, the Board of Directors of the Company iscomposed of 15 members, four of whom are outside directors.
The four outside directors have many years of management
experience in the Company’s business and are able to offer
objective, professional advice regarding operations. For thisreason, they were asked to join the Board of Direc tors tocontribute to the development of the Company’s business.
The four outside directors concurrently serve as directors oradvisers of Japan Petroleum Exploration Co., Ltd., Mitsubishi
Corporation, Mitsui Oil Exploration Co., Ltd. and JX Holdings,
Inc. (“shareholder corporations”), respectively.
At the same time, however, the shareholder corporations are

096

INPEX CORPORATION Annual Report 2011

involved in businesses that overlap with those of the Company.
The Company therefore recognizes that it must pay particularattention to corporate governance to avoid conflicts of interest inconnection with competition and other matters.
To this end, all Company directors, including the outside
directors, are required to sign a written undertaking to carry out
their duties as officers of the Company appropriately and withthe highest regard for the importance of such matters as their
obligations in connection with noncompetitive practices under
the Japanese Companies Act, the proper manner for dealing
with conflict of interest, and confidentiality.

Japan
Crude oil(MMbbls)

Asia & Oceania
Gas
(Bcf)

Proved developed and undeveloped reserves
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 200918
713
Extensions and discoveries——
Acquisitions and sales——
Revisions of previous estimates00Interim production(1)(57)
As of March 31, 201016656
Equity-method Affiliates
As of March 31, 2009——
Extensions and discoveries——
Acquisitions and sales——
Revisions of previous estimates——Interim production——
As of March 31, 2010——
As of March 31, 2010
16
656
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 2010
16
656
Extensions and discoveries——
Acquisitions and sales——
Revisions of previous estimates
0—Interim production(1)(46)
As of March 31, 201115611
Equity-method Affiliates
As of March 31, 2010——
Extensions and discoveries——
Acquisitions and sales——
Revisions of previous estimates——Interim production——
As of March 31, 2011——
Proved developed and undeveloped reserves
15611
As of March 31, 2011
Proved developed reserves
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 201115611
Equity-method Affiliates
As of March 31, 2011——
Proved undeveloped reserves
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 2011——
Equity-method Affiliates
As of March 31, 2011——

and are reported in accordance with the Accounting Standard
Codification Topic 932 “Extractive activities —Oil and Gas.”
Our proved reserves as of March 31, 2011 were 899.16 million
barrels for crude oil, condensate and LPG, 2,451.0 billion cubicfeet for natural gas and 1,307.67 million boe (Barrels of Oil
Equivalent) in total.
Eurasia(Europe & NIS)

Middle East &AfricaAmericas

Total

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

124
5
—
(1)
(17)
111

1,923
—
—
45
(319)
1,649

211
—
—
6
(10)
207

—
—
—
—
—
—

457
—
—
3
(27)
433

—
—
—
—
—
—

5
—
—
1
(2)
4

159
—
—
62
(32)
190

815
5
—
9
(57)
771

2,795
—
—
107
(408)
2,495

2
—
—
(0)
(0)
1
112

505
—
—
(30)
—
475
2,124

—
—
—
—
—
—
207

—
—
—
—
—
—
—

226
—
—
(2)
(21)
203
636

—
—
—
—
—
—
—

6
—
—
(1)
(1)
4
8

1
—
—
(0)
(0)
0
190

233
—
—
(2)
(22)
209
980

505
—
—
(30)
(0)
475
2,970

111
—
(6)
4
(24)
85

1,649
—
(37)
(100)
(305)
1,208

207
—
7
6
(10)
210

—
—
—
—
—
—

433
—
—
(3)
(27)
404

—
—
—
—
—
—

4
—
(3)
0
(1)
0

190
—
—
2
(30)
162

771
—
(2)
8
(63)
715

2495
—
(37)
(98)
(380)
1,980

1
—
—
0
(0)
2

475
—
—
16
(20)
470

—
—
—
—
—
—

—
—
—
—
—
—

203
—
0
(1)
(23)
179

—
—
—
—
—
—

4
—
—
0
(2)
3

0
—
—
0
(0)
0

209
—
0
(1)
(24)
184

475
—
—
16
(21)
471

87

1,678

210

—

583

—

3

162

899

2,451

69

986

35

—

404

—

0

161

523

1,757

2

470

—

—

179

—

2

0

183

471

16

222

176

—

—

—

0

1

192

223

—

—

—

—

—

—

1

0

1

0

Note 1. As of March 31, 2011, INPEX held proved reserves in Indonesia of approximately 51.0 million barrels for crude oil and around 1,544.0 billion cubic feet for natural gas for a total of about
308.5 million boe (Barrels of Oil Equivalent).
2. Proved Reserves (as of March 31,2011)of the following blocks and fields include minority interests.
		 Eurasia (Europe & NIS): ACG (49%), Kashagan (55%),Middle East & Africa: West Bakr (47.3%), Americas: Copa Macoya (30%)
3. MMbbls: Millions of barrels
4. Bcf: Billions of cubic feet
5. Crude oil includes condensate and LPG

Financial /Corporate Information

Company. Accordingly, the Minister of Economy, Trade andIndustry, as the holder of the special-class share, has veto rights
over these important matters.

Standardized measure of discounted future net cash flows and changes relating to proved oil and gas reserves
Disclosure details for the standardized measure of discounted
future net cash flows relating to proved reserves and movements
during the fiscal year under review are presented in accordancewith the rules and regulations stipulated by the U.S. Financial
Accounting Standards Board, and are reported in accordancewith the Accounting Standard Codification Topic 932 “Extractive
activities —Oil and Gas.”
In calculating the standardized measure of discounted future

net cash flows, the period average of oil and gas prices at thefirst day of each month as well as period-end costs are applied tothe estimated annual future production from proved reserves todetermine future cash inflows.
Future development costs are estimated based upon
constant price assumptions and assume the continuation ofexisting economic, operating, and regulatory conditions. Future
income taxes are calculated by applying the period-end statutory

INPEX CORPORATION Annual Report 2011097

fair market value of the oil and natural gas reser ves or thepresent value of estimated cash ﬂows since no economic value isattributed to potential reserves, the use of a 10% discount rate is
arbitrary, and prices change constantly.
We use the exchange rates of ¥93.04 and ¥83.15 to US$1.00
as of March 31, 2010 and 2011, respectively.

Probable reserves and possible reserves
The following tables list the probable and possible reserves of crude oil, condensate, LPG and natural gas of our company ,ourconsolidated subsidiaries and equity method afﬁliates on main project. Our probable reserves as of March 31, 2011 were 1,392.85
million barrels for crude oil, condensate and LPG, 8,553.7 billion cubic feet for natural gas and 2,818.47 million boe in total. In addition,
the Group’s possible reserves as of March 31, 2011 were 218.91 million barrels for crude oil, condensate and LPG, 2,196.3 billion cubicfeet for natural gas and 584.96 million boe in total.

Millions of Yen

March 31, 2010

Total

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

Japan

Americas¥ 6,194,451(2,159,840)(2,548,220)
1,486,391(709,314)
777,077¥ 495,648(128,497)(117,201)
249,950(121,312)
128,638¥1,707,919(648,877)(449,341)
609,701(189,090)
420,611¥1,150,581(485,115)(149,413)
516,053(337,759)
178,294¥ 2,781,641(870,046)(1,820,429)
91,166(56,669)
34,497¥ 58,663(27,306)(11,837)
19,520(4,483)
15,037

1,439,084(509,279)(856,117)
73,688(37,025)

—
—
—
—
—

83,504(29,380)(19,192)
34,932(18,384)

—
—
—
—
—

1,329,955(464,240)(835,636)
30,079(16,900)

25,625(15,659)(1,289)8,677(1,740)36,663—

16,548—13,1796,937

813,740¥ 128,638¥ 437,159¥ 178,294

47,676¥ 21,974

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 in Standardized measure of
discounted future net cash flows

Eurasia
Middle East &Asia & Oceania (Europe & NIS)
Africa¥¥Notes: 1. Reserves of the following blocks and fields include minority interests.
Asia & Oceania: Offshore Northwest Java (16.5%), Offshore Southeast Sumatra (16.5%)
Eurasia (Europe & NIS): ACG (49%), Kashagan (55%)
Middle East & Africa: Abu Al Bukhoosh (5%), West Bakr (47.3%)
Americas: Copa Macoya (30%)

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
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 in Standardized measure of
discounted future net cash flows

Eurasia
Middle East &Asia & Oceania (Europe & NIS)
Africa

Total

Japan

¥ 6,350,230(1,913,933)(2,686,247)
1,750,050(749,379)
1,000,671¥ 539,869(117,393)(139,424)
283,052(128,557)
154,495¥1,590,216(449,736)(478,851)
661,630(174,490)
487,140¥1,383,629(494,241)(179,337)
710,051(394,948)
315,103¥ 2,806,307(833,128)(1,886,511)
86,667(49,389)
37,278¥ 30,209(19,434)(2,125)8,650(1,994)
6,656

1,397,434(448,355)(866,698)
82,381(33,395)-

101,144(49,888)(15,943)
35,314(15,436)-

1,276,469(390,130)(847,664)
38,676(17,282)

19,821(8,338)(3,091)
8,392
(677)

48,986-

19,878-21,393

7,715¥ 1,049,657¥ 154,495¥ 507,017¥ 315,103

58,671¥ 14,370¥

Americas

Notes: 1 Reserves of the following blocks and fields include minority interests.
Eurasia (Europe & NIS): ACG (49%), Kashagan (55%)
Middle East & Africa: West Bakr (47.3%)
Americas: Copa Macoya (30%)

Millions of Yen

INPEX CORPORATION and Consolidated Subsidiaries
Standardized measure, beginning of period
As of April 1, 2010
Changes resulting from:
Sales and transfers of oil and produced, net of
production costs
Net change in prices, and production costs
Development cost incurred
Changes in estimated development costs
Revisions of previous quantity estimates
Accretion of discountNet change in income taxes
Extensions, discoveries and improved recoveries
OtherStandardized measure, end of the period
As of March 31, 2011

Probable reserves
Crude oil, condensate and LPG (MMbbls)
Natural gas (Bcf)

Japan

4
133

Eurasia
Middle East &Asia & Oceania (Europe & NIS)
Africa

629
8,224

540
—

Americas114—

Subtotal

72
104

1,358
8,461

35
93

Total

1,393
8,554

Note 1: Bitumen reserve volumes are included in the net probable reserves of crude oil, condensate and LPG for the Americas.

March 31, 2011
Possible reserves
Crude oil, condensate and LPG (MMbbls)
Natural gas (Bcf)

Japan

5
169

Eurasia
Middle East &Asia & Oceania (Europe & NIS)
Africa

163
2,007

27
—

Americas9—

Subtotal

918Interest in
Reserves Heldby EquityMethod
Afﬁliates

212
2,195

7
2

Total

219
2,196

Notes: 1. MMbbls: Millions of barrels
2. Bcf: Billions of cubic feet

2. OIL AND GAS PRODUCTION
Millions of Yen

March 31, 2011

March 31, 2011

Interest in
Reserves Heldby EquityMethod
Afﬁliates

Eurasia
Middle East &Asia & Oceania (Europe & NIS)
AfricaAmericas

Equity method
afﬁliates

Total

Japan

¥ 813,740¥128,638¥ 420,611¥178,294¥ 34,497¥15,037¥ 36,663(508,519)(19,129)(208,617)(48,858)(124,814)(3,314)(103,787)

797,080
134,197(27,919)
62,352
63,903(200,877)
2,146(86,445)

59,277
1,721
(150)
6,043
10,478(18,722)—(13,661)

299,991
63,518780(16,484)
29,153(50,824)(6,198)(44,791)

107,142
51,787(27,861)
56,464
17,841(14,988)
14,190(18,908)

179,087
8,690
6,911
4,590
2,729
(70,871)—(3,541)(2,782)
63
142
1,615
511
2,676
(5,846)(1,446)

154,364
8,418(7,741)
10,124
3,191(48,148)—(4,098)¥1,049,657¥154,495¥ 487,140¥315,103¥ 37,278¥ 6,656¥ 48,986

The following tables list average daily productions for crude oil, natural gas, and the total of crude oil and natural gas by region. The
proportional interests in production by our equity-method afﬁliates are not broken down by geographical regions. Our productions forthe year ended March 31, 2011 were 239.6 thousand barrels per day for crude oil, condensate and LPG, 1,102.5 million cubic feet per day
for natural gas and 423.3 thousand boe (Barrels of Oil Equivalent) per day in total.
Years ended March 31,

2007

2008

2009

2010

2011

Crude oil, condensate and LPG (Thousands of barrels per day):Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Subtotal
Proportional interest in production by equity-method afﬁliates
Total
Annual production (MMbbl)

3.9
40.4
47.9
82.3
0.1
174.7
67.8
242.5
88.5

4.9
36.5
54.5
80.7
0.4
177.0
64.6
241.5
88.4

4.9
44.7
24.8
81.0
2.7
158.1
65.1
223.2
81.5

4.5
47.7
26.9
73.3
5.5
158.0
60.4
218.3
79.7

3.9
65.1
27.9
73.0
2.3
172.2
67.4
239.6
87.5

127.8
865.8
—
—
57.5
1,051.1

164.9
842.8
—
—
82.3
1,090.0

1,051.1
383.6

161.5
845.7
—
—
81.6
1,088.8—
1,088.8
398.5

1,090.0
397.8

155.1
880.5
—
—
86.9
1,122.6—
1,122.6
409.7

128.7
836.0
—
—
81.1
1,045,956.6
1,102.5
402.4

25.2
184.7
47.9
82.3
9.7
349.8
67.8
417.7
152.5

31.9
177.4
54.5
80.7
14.0
358.4
64.6
423.0
154.8

32.4
185.1
24.8
81.0
16.4
339.7
65.1
404.9
147.8

30.4
194.5
26.9
73.3
20.0
345.1
60.4
405.4
148.0

25.3
204.4
27.9
73.0
15.8
346.5
76.8
423.3
154.5

Natural gas (Millions of cubic feet per day):Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Subtotal
Proportional interest in production by equity-method afﬁliates
Total
Annual production (MMbbl)
Crude oil and natural gas (Thousands of barrels of equivalent per day):Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Subtotal
Proportional interest in production by equity-method afﬁliates
Total
Annual production (MMbbl)

Financial /Corporate Information

rate to estimated future pretax cash flows after provision fortaxes on the cost of oil and natural gas properties based upon
existing laws and regulations. The discount is computed byapplying a 10% discount factor to the estimated future net cash
ﬂows.
We believe that this information does not represent theNotes: 1. Reserves of the following blocks and fields include minority interests.
Asia & Oceania: Offshore Northwest Java (16.5%), Offshore Southeast Sumatra (16.5%)
Eurasia (Europe & NIS): ACG (49%), Kashagan (55%)
Middle East & Africa: Abu Al Bukhoosh (5%), West Bakr (47.3%)
Americas: Copa Macoya (30%)
2. Extensions, discoveries and improved recoveries includes Acquisition and sales.

098

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011099

Consolidated Balance Sheets
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 2010 and 2011

Thousands of
U.S. dollars(Note 3)

Millions of yen

ASSETS

2010

2011

2011

Cash and cash equivalents¥ 216,395¥ 182,025$ 2,189,116

Accounts receivable—trade

88,364

95,391

1,147,216

Marketable securities (Note 5)

112,669

137,270

1,650,872

Inventories

12,322

12,138145,977

Deferred tax assets (Note 7)

5,356

9,451

113,662

Accounts receivable—other

43,161

57,033685,905

Other

14,611

12,766

153,530(23)(13,142)(158,052)

492,855

492,932

5,928,226

Buildings and structures (Note 6)

231,681

233,270

2,805,412

Wells (Note 6)

203,056

224,676

2,702,057

Machinery, equipment and vehicles (Note 6)

255,846

270,759

3,256,272

Land (Note 6)

20,79020,708249,044

Construction in progress

91,44775,078902,922

Other

60,774

86,1481,036,055

863,594

910,639

10,951,762(505,500)(530,777)(6,383,367)

358,094

379,8624,568,395

Tangible ﬁxed assets:

Less accumulated depreciation and amortization

LIABILITIES AND NET ASSETS

2010

2011

¥

¥

2011

Current liabilities:

Current assets:

Less allowance for doubtful accounts

Thousands of
U.S. dollars(Note 3)

Millions of yen

Accounts payable—trade
Short-term borrowings and current portion of
long-term debt (Notes 6 and 12)
Income taxes payable (Note 7)

16,602

23,441$

281,912

4,872

4,441

53,41086,535

113,102

1,360,217

Accounts payable—other (Note 6)

81,211

83,3091,001,912

Provision for exploration projects

15,324

9,537

114,696

132

128

1,539

Accrued bonuses to ofﬁcers
Asset retirement obligations (Note 15)

—

3,687

44,342

23,22917,084205,460

227,905

254,729

3,063,488

Long-term debt (Notes 6 and 12)

235,511

268,706

3,231,581

Deferred tax liabilities (Note 7)

27,13936,518439,182

Accrued retirement beneﬁts to employees (Note 14)

7,586

6,979

83,933Liabilities for site restoration and decommissioning costs

14,258——

Liabilities for losses on development activities

1,965

—

—

Other (Note 7)Long-term liabilities:

Accrued special repair and maintenance

442

443

5,328

Asset retirement obligations (Note 15)

—

8,966

107,829

Other (Note 6)
Total liabilities

8,369

6,656

80,048295,270

328,268

3,947,901

523,175

582,997

7,011,389

30,000290,810

3,497,415

Intangible assets:
108,123

101,362

1,219,026

Exploration and development rights

107,857

125,229

1,506,061

Mining rights

18,155

17,554

211,113

Other

5,070

4,966

59,723

239,205

249,1112,995,923

Investments and other assets:

Net assets (Note 9):
Common stock:
Authorized : 2010 — 9,000,001 shares2011 — 9,000,001 shares
Issued :2010 — 2,358,410 shares2011 — 3,655,810 shares
Capital surplus

418,478

679,288

8,169,429

936,745

1,047,431

12,596,885(5,248)(5,248)(63,115)

1,379,975

2,012,281

24,200,614

Unrealized holding gain on securities

12,351

1,456

17,511Retained earnings
Less : Treasury stock : 2010 — 4,916 shares2011 — 4,916 shares
Total shareholders' equity

Recoverable accounts under production sharing

514,646534,3316,426,109

Less allowance for recoverable accounts
under production sharing(94,892)(96,880)(1,165,123)

419,754437,451

5,260,986

Investment securities (Notes 5 and 6)

403,978975,541

11,732,303

Long-term loans receivable

18,641

13,979168,118

Translation adjustments(4,826)(16,847)(202,610)

Deferred tax assets (Note 7)

24,563

27,214327,288

Total accumulated other comprehensive income

7,525(15,391)(185,099)

Other investments (Note 6)

72,577

118,341

1,423,223

(641)

(270)

(3,247)Less allowance for doubtful accounts
Less allowance for investments in exploration
Total assets

Minority interests
Total net assets(15,248)(13,781)(165,737)

923,624

1,558,475

18,742,934

Contingent liabilities (Note 18)¥2,013,778¥2,680,380$32,235,478

Total liabilities and net assets

103,103

100,493

1,208,574

1,490,603

2,097,383

25,224,089¥2,013,778¥2,680,380$32,235,478

Financial /Corporate Information

Goodwill (Note 16)

See accompanying notes to consolidated financial statements.

100

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011101

Consolidated Statements of Income and Consolidated Statement of Comprehensive Income

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Income

INPEX CORPORATION and Consolidated Subsidiaries

INPEX CORPORATION and Consolidated Subsidiaries
For the years ended March 31, 2009, 2010 and 2011
Thousands of
U.S. dollars(Note 3)

Millions of yen

2009

Other expenses:
Interest expense
Equity in losses of afﬁliates
Provision for allowance for doubtful accounts
Provision for allowance for recoverable
accounts under production sharing
Provision for exploration projects
Provision for investments in exploration
Loss on valuation of investment securities
Loss on adjustment for changes of accounting
standard for asset retirement obligations (Note 15)
Foreign exchange loss
Other
Income before income taxes and minority interests
Income taxes (Note 7):
Current
DeferredIncome before minority interests
Minority interests
Net income (Note 10)

2011

2011

¥1,076,165
319,038
757,127
25,98250,683
17,195663,267¥840,427
298,168
542,259
15,711
44,86920,011
461,668¥943,080
334,833
608,247
12,00044,254
22,250529,743$11,341,912
4,026,855
7,315,057
144,317532,219
267,589
6,370,932

9,536
12,338
946
—
—
9,215
32,035

4,354
9,476
—
—
—
7,643
21,473

4,110
5,722
4,934
3,644
7,334
5,432
31,17649,42968,81559,33943,82488,20265,328374,937

3,934
—
—

1,275
1,920
—

1,074
—
9,133

12,916—
109,838

16,643

6,028

11,481138,076

3,387—
31,799

8,595
5,408
—

3,082
—
—

37,066
—
—

—

—

1,555

18,701

14,571
8,801
79,135616,167

13,264
4,624
41,114442,027

11,54014,46752,332508,587

138,785
173,987
629,369
6,116,500

488,262(17,884)
470,378—726¥ 145,063

322,993
2,133
325,126—
9,691¥107,210

367,083
1,614
368,697
139,890
11,191¥128,699

4,414,708
19,411
4,434,119
1,682,381
134,588$ 1,547,793

INPEX CORPORATION and Consolidated Subsidiaries
For the year ended March 31, 2011

Millions of yen

Income before minority interests
Other comprehensive income
Unrealized holding loss on securities
Translation adjustments
Share of other comprehensive income of associates accounted
for by the equity method
Total other comprehensive income (Note 8)
Comprehensive income (Note 8)
Total comprehensive income attributable to:Shareholders of INPEX CORPORATION
Minority interests

102

INPEX CORPORATION Annual Report 2011

Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders' equity
Unrealized holding gain (loss)
on securities
Unrealized gain (loss) fromhedging instruments
Translation adjustments
Total valuation, translation
adjustments and others
Minority interests
Total net assets¥

30,000418,494
718,616(2,215)
1,164,895¥——(18,846)—(18,846)¥——
145,063—
145,063¥———(3,563)(3,563)

¥ —
(16)
—
530
514

(60)

—

—

(7,524)——81,442¥1,238,813—¥(18,846)—¥145,063—¥(3,563)—¥514

For the year ended March 31, 2010

Balance
as of March 31,
2009

¥

—
—
—
—
—

¥

—
(16)
126,217(3,033)
123,168¥

30,000418,478
844,833(5,248)1,288,063(7,468)

—

—

—

—

650

650

(6,818)

4

—

—

—

—

(5)

(5)

(1)

—

—

(10,061)(10,061)(10,121)——(9,416)(9,416)(16,940)

9,496
80

9,496
¥123,248

90,938¥1,362,061¥

Millions of yen

Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders' equity
Unrealized holding gain (loss)
on securities
Unrealized gain (loss) fromhedging instruments
Translation adjustments
Total valuation, translation
adjustments and others
Minority interests
Total net assets¥

30,000418,478
844,833(5,248)1,288,063

For the year ended March 31, 2011

Balance
as of March 31,
2010

Cash
dividends paid

Net changes in items
other than those inshareholders' equity

Net income¥——(15,298)—(15,298)¥——
107,210—
107,210¥

Total changes
during theperiod

—
—
—
—
—

¥

—
—
91,912—
91,912

Balance
as of March 31,
2010¥

30,000418,478
936,745(5,248)1,379,975(6,818)——

19,16919,16912,351

(1)

—

—

1

1

—

(10,121)

—

—

5,295

5,295

(4,826)(16,940)——

24,46524,465

7,525

90,938¥1,362,061—¥(15,298)—¥107,210

12,165¥36,630

12,165¥128,542

103,103¥1,490,603
Millions of yen

Consolidated Statement of Comprehensive Income

See accompanying notes to consolidated financial statements.

For the year ended March 31, 2009

Thousands of
U.S. dollars(Note 3)

2011

2011

¥139,890$1,682,381(10,951)(11,516)(131,702)(138,496)(2,717)(32,676)(25,184)
114,706(302,874)
1,379,507

105,783¥ 8,923

Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders' equity
Unrealized holding gain (loss)
on securities
Translation adjustments
Total accumulated othercomprehensive income
Minority interests
Total net assets

1,272,195$ 107,312¥

Issuance of
new shares

Cashdividends paid¥——
(18,013)—(18,013)

Net income¥——
128,699—
128,699

Net changes in items
other than those inshareholders' equity¥

Total changes
during theperiodBalance
as of March 31,
2011

—
—
—
—
—

¥260,810
260,810
110,686—
632,306¥ 290,810
679,288
1,047,431(5,248)2,012,281

30,000418,478
936,745(5,248)1,379,975¥260,810
260,810——521,620

12,351———(10,895)(10,895)

1,456(4,826)———(12,021)(12,021)(16,847)

7,525

—

—

—

(22,916)(22,916)(15,391)

103,103¥1,490,603—¥521,620—¥(18,013)—¥128,699(2,610)¥(25,526)(2,610)¥606,780

100,493¥2,097,383

Thousands of U.S. dollars (Note 3)
Balance
as of March 31,
2010

Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders' equity
Unrealized holding gain (loss)
on securities
Translation adjustments
Total accumulated othercomprehensive income
Minority interests
Total net assets$

Issuance of
new shares

Cashdividends paid$——
(216,633)—(216,633)

Net income$——
1,547,793—
1,547,793

Net changes in items
other than those inshareholders' equity$

Total changes
during theperiodBalance
as of March 31,
2011

—
—
—
—
—

$3,136,621
3,136,621
1,331,160—
7,604,402$ 3,497,415
8,169,429
12,596,885(63,115)
24,200,614

360,794
5,032,808
11,265,725(63,115)
16,596,212$3,136,621
3,136,621——
6,273,242

148,539———(131,028)(131,028)

17,511(58,040)———(144,570)(144,570)(202,610)

90,499———(275,598)(275,598)(185,099)

1,239,964$17,926,675—$6,273,242—$(216,633)—$1,547,793(31,390)$(306,988)(31,390)$7,297,414

1,208,574$25,224,089

Financial /Corporate Information

Net sales
Cost of sales
Gross proﬁt
Exploration expenses
Selling, general and administrative expenses (Notes 13, 14 and 16)
Depreciation and amortization
Operating income
Other income:Interest income
Dividend income
Equity in earnings of afﬁliates
Gain on change in equity
Gain on transfer of mining rights
Other

2010

Millions of yen
Balance
Balance
Disposal Net changes in items Total changes
Cash
Purchase ofduring theas of March 31,
as of March 31,
Net income
treasury other than those individends paid
treasury stock
shareholders' equity
period
2009
2008
stock

See accompanying notes to consolidated financial statements.

INPEX CORPORATION Annual Report 2011103

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

INPEX CORPORATION and Consolidated Subsidiaries
For the years ended March 31, 2009, 2010 and 2011

INPEX CORPORATION and Consolidated Subsidiaries

Cash ﬂows from operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Amortization of goodwill
Loss on adjustment for changes of accounting standard for asset
retirement obligations
Provision for allowance for doubtful accounts
Provision for allowance for recoverable accounts under
production sharing
Provision for exploration projects
Provision for accrued retirement beneﬁts to employees
Provision for site restoration and decommissioning costs
Other provisions
Interest and dividend income
Interest expense
Foreign exchange loss (gain)
Equity in (earnings) losses of afﬁliates
Gain on transfer of mining rights
Gain on the sales of investment securities
Loss on the 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 operating activities
Cash ﬂows from investing activities:
Payments for time deposits
Proceeds from time deposits
Payments for long-term 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 marketable securities
Proceeds from sales and redemptions of marketable securities
Payments for purchases of investment securities
Proceeds from sales and redemptions of investment securities
Investment in recoverable accounts under production sharing(capital expenditures)
Decrease in short-term loans receivable
Long-term loans madeCollection of long-term loans receivable
Payments for purchase of mining rights
Proceeds from transfer of mining rights
Other
Net cash used in investing activities
Cash ﬂows from ﬁnancing activities:
Proceeds from issuance of common stock
Increase (decrease) in short-term loans
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from minority interests for additional shares
Purchases of treasury stock
Cash dividends paid
Dividends paid to minority shareholders
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 year
Increase in cash and cash equivalents from newly consolidated subsidiary
Cash and cash equivalents at end of the year
See accompanying notes to consolidated financial statements.

104

INPEX CORPORATION Annual Report 2011

2009

2010

2011

2011

¥ 616,167
42,9676,760¥ 442,027
40,354
6,759¥ 508,587
54,245
6,760$ 6,116,500
652,375
81,299

—

—

1,555

18,701——

12,925

155,442

20,3107,431

15,320184,245(2,320)
(97)
1,598
3,468
(21,874)
3,934
10,087(947)—(81)
31,799

7,361
(902)
60
4,484
(13,830)
1,275
2,380
1,920
—
—
—

(5,442)(593)—(1,462)(9,832)
1,074(3,015)(4,934)(7,334)——(65,448)(7,132)—(17,583)(118,244)
12,916(36,260)(59,339)(88,202)——45,72545,65350,817611,149(27,020)(14,996)(17,369)(208,887)

44,2002,348(9,825)27,558(47,813)
4,229(6,489)744,684
21,258(4,801)(530,789)
230,352(14,639)
5,844
4,719
(9,671)
13,670(1,120)3,357
532,136
16,170(1,734)(305,199)
241,373(11,376)
(223)
7,278
7,694
9,699
(2,490)(595)
611,289
13,079(748)(349,526)
274,094(136,813)(2,682)87,52992,532
116,645(29,946)(7,155)
7,351,642
157,294(8,996)(4,203,560)
3,296,380(6,464)
4,498—(88,611)
246(2,865)(19,082)
111,451(137,447)
16,531(9,925)8,430—(87,549)
86(991)—
101,321(156,264)
—

(493)
3,849
(53,500)(84,236)
1,072(2,535)(11,731)112,000(724,635)
10,847(5,929)46,290(643,415)(1,013,061)
12,892(30,487)(141,082)
1,346,963(8,714,793)
130,451(108,294)(91,650)(77,865)(936,440)

71(5,896)762——(5,068)(240,168)

77(7,521)
34——(7,860)(251,812)

1,570(1,134)567(28,045)
7,334
2,424
(844,511)

18,882(13,638)
6,819(337,282)
88,202
29,152(10,156,476)—
20,934
12,041(66,365)
9,370(3,049)(18,833)(82)(106)(46,090)(3,519)(59,425)
222,270—¥ 162,845—(20,121)
108,063(5,284)
4,704—(15,306)(2,973)(146)
68,937(4,948)53,550162,845—¥ 216,395

521,620—
56,285(4,713)
6,418—(18,010)(13,450)(93)548,057(12,015)(34,375)
216,395
5¥ 182,025

6,273,242—
676,909(56,681)
77,186—(216,597)(161,756)(1,118)6,591,185(144,498)(413,409)
2,602,465
60$ 2,189,116

1. BASIS OF PRESENTATIONINPEX CORPORATION (the "Company") is primarily engaged in the
research, exploration, development and production of natural gas
and crude oil.
The Company and its domestic subsidiaries maintain theiraccounting records and prepare their financial statements inaccordance with accounting principles generally accepted in Japan.
The accompanying consolidated financial statements have been
prepared by using the accounts of foreign consolidated subsidiaries
prepared in accordance with International Financial ReportingStandards, or IFRS or the accounting principles generally accepted in
the United States, or U.S. GAAP as adjusted for certain items.
The accompanying consolidated financial statements havebeen prepared in accordance with accounting principles generally
accepted in Japan, which may differ in certain material respects fromIFRS 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.

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 andﬁnancial policies are included in the consolidated ﬁnancial statements
on an equity basis. All significant intercompany balances andtransactions are eliminated in consolidation. Further, because certain
companies do not have a significant impact on the consolidated
ﬁnancial statements, these are not consolidated or accounted for by
the equity method.
For the 39 companies for which the closing date differed from theconsolidated closing date, including but not limited to, INPEX Sahul,Ltd. and INPEX Masela, Ltd., the financial statements for the year
ended December 31 were used. However, the necessary adjustments
have been made to the ﬁnancial statements of those companies toreflect any significant transactions made between the Company's
closing date and those of the consolidated subsidiaries.
For the 8 companies, including but not limited to, Japan Oil
Development, Co., Ltd., Teikoku Oil D.R. Congo, Co., Ltd., INPEXSouthwest Caspian Sea, Ltd., and INPEX North Caspian Sea, Ltd., theﬁnancial statements for the year ended on the consolidated closing
date were used, even though their closing date is December 31.
Teiseki Real Estate Co., Ltd., changed the closing date from
December 31 to March 31, since the year ended March 31, 2010.
Accordingly, the consolidated operating results for the year ended
March 31, 2010 included operating results for 15 months fromJanuary 1, 2009 to March 31, 2010. The effect of this change
does not have a significant impact on the consolidated financial
statements. On April 1, 2010, Teiseki Real Estate Co., Ltd. mergedwith INPEX Service Ltd. which had been the Company's consolidated
subsidiary and was renamed INPEX Business Service Ltd..
The excess of cost over underlying net assets excluding minority
interests at fair value as of their dates of acquisition is accounted foras goodwill and amortized over 20 years on a straight-line method.

(b) Cash equivalents
All highly liquid investments with a maturity of three months or lesswhen purchased are considered cash equivalents.

(c) Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies aretranslated 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 prevailing whensuch transactions were made. The resulting exchange gain or loss iscredited 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 minority
interests are translated at their historical exchange rates. The
differences arising from the translation are presented as translation
adjustments and minority 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 fairvalue with any changes in unrealized holding gain or loss, net ofthe applicable income taxes, included directly in net assets. Other
securities without a determinable market value are stated at cost.
Cost of securities sold is determined by the moving average method.

(e) Inventories
Overseas inventories are carried mainly at cost, determined by theaverage cost method (balance sheet value is carried at the lowerof cost or market). Domestic inventories are carried mainly at cost,
determined by the moving-average method (balance sheet value iscarried at the lower of cost or market).

(f) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amountdetermined based on the historical experience of bad debt withrespect to ordinary receivables, plus an estimate of uncollectible
amounts determined by reference to specific doubtful receivablesfrom customers experiencing ﬁnancial difﬁculties.

Financial /Corporate Information

Thousands of
U.S. dollars(Note 3)

Millions of yen(g) Recoverable accounts under production
sharing and related allowance
Cash investments made by the Company during an exploration,
development and production project under a production sharing
contract are recorded as "Recoverable accounts under production
sharing" so long as they are recoverable under the terms of therelevant contract. When the Company receives natural gas andcrude oil 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.

INPEX CORPORATION Annual Report 2011105

(q) Hedge accounting

3. U.S. DOLLAR AMOUNTS

The simpliﬁed accounting method is applied to interest rate swaps. In
addition, the nominal amount of the derivative transaction is limited
to the scope of actual demand, and the Company does not engage
in speculative derivative transactions.

The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic computation only, at¥83.15=US$1.00, the approximate rate of exchange in effect on March 31, 2011. This translation should not be construed as a representationthat yen have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate.

(r) Research and development expenses
Research and development expenses are charged to income as
incurred.

4. STATUS OF FINANCIAL INSTRUMENTS(s) Income taxes(a) Policy regarding ﬁnancial instruments

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 toreverse.

The Company raises funds for oil and gas exploration, development
and production, construction or expansion of domestic pipelinesand LNG receiving terminal primarily from cash flow on hand andfrom bank loans. Oil and gas development projects are primarily
funded from long-term loans that the Company has secured from theJapan Bank of International Cooperation and Japanese commercial
banks. Japan Oil, Gas and Metals National Corporation has provided
guarantees for the principal on certain outstanding amounts of theCompany's long-term loans. The Development Bank of Japan andJapanese commercial banks have provided long-term loans for theconstruction or expansion of domestic pipelines and LNG receiving
terminal. The Company generally borrows with variable interest rates,
while some loans are with a fixed interest rate depending on thenature of each project.
Regarding ﬁnancing policy, the Company manages funds mainly
from cash on hand and government bonds, which are considered
to be of low-risk and high-liquidity. The Company does not engage
in speculative derivative transactions. However, the Company uses
derivative transactions to prevent risks hereinafter described below.

(h) Allowance for investments in exploration
The 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.

(i) Provision for exploration projects
Provision for exploration projects is provided for future expendituresof consolidated subsidiaries at the exploration stage based on aschedule of investments in exploration.

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

(k) Tangible ﬁxed assets (except leased assets)
Depreciation of overseas mining facilities is mainly computed by theunit-of-production method.
For other tangible fixed assets, the straight-line method ofdepreciation is applied. The useful lives of ﬁxed assets are based on
the estimated useful lives of the respective assets.

(l) 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.
Capitalized computer software costs are amortized over a periodof ﬁve years.
Other intangible assets are amortized by the straight-line method.

(m) Leased assets
Leased assets are amortized by the straight-line method overthe lease period assuming no residual value.

(n) Accrued retirement beneﬁts to employees
Accrued retirement benefits to employees are provided at theamount calculated based on the expected retirement benefit
obligation and the fair value of pension plan assets at the end of
this period. Because certain subsidiaries are classified as small
enterprises, we employ a simplified method (at the amount which
would be required to be paid if all active employees voluntarily
terminated their employment as of the balance sheet date) for the
calculation of the retirement beneﬁt obligation of the subsidiaries.
Actuarial gains and losses are charged or credited to income as
incurred.

(o) Asset retirement obligations
Asset retirement obligations are provided by a reasonable estimateof retirement costs incurred upon termination of the operation withrespect to oil and gas production facilities in case that the Company
is obliged to retire such facilities by oil and gas contracts or laws andregulations with the countries in which the Company operates or has
working interests.

(p) Accrued special repair and maintenance(t) Adoption of new accounting standard
Effective the ﬁscal year ended March 31, 2010, the Company applies"Accounting Standard for Financial Instruments" (ASBJ Statement
No.10, issued on March 10, 2008) and "Guidance on Disclosuresabout Fair Value of Financial Instruments" (ASBJ Guidance No.19,
issued on March 10, 2008).
Effective the fiscal year ended March 31, 2011, the Company
applies "Accounting Standard for Asset Retirement Obligations"(ASBJ Statement No. 18, issued on March 31, 2008) and the"Guidance on Accounting Standard for Asset Retirement
Obligations" (ASBJ Guidance No. 21 issued on March 31, 2008).
Pursuant to these standards, the Company has reversed liabilities forsite restoration and decommissioning costs which had been recorded
as a provision for future costs expected to incur in accordance withthe schedule for site restoration and decommissioning. As a result,operating income decreased by ¥141 million ($1,696 thousand) andincome before income taxes and minority interests decreased by¥1,046 million ($12,580 thousand), respectively.
Effective the fiscal year ended March 31, 2011, the Company
applies "Accounting Standard for Equity Method of Accounting forInvestments" (ASBJ Statement No. 16, issued on March 10, 2008)
and the "Practical Solution on Unification of Accounting Policies
Applied to Associates Accounted for Using the Equity Method" (ASBJ
PITF No. 24, issued on March 10, 2008). There is no impact on the
consolidated ﬁnancial statements as a result of this change.
Effective the fiscal year ended March 31 2011, based on the"Accounting Standard for Consolidated Financial Statements" (ASBJ
Statement No. 22, issued on December 26, 2008), the Company
applies "Cabinet Office Ordinance Partially Revising Regulation
for Terminology, Forms and Preparation of Financial Statements"(Cabinet Office Ordinance No.5, issued on March 24, 2009). As
a result, "Income before minority interests" is included in the
consolidated ﬁnancial statement for the year ended March 31, 2011.
Effective the fiscal year ended March 31, 2011, the Company
applies "Accounting Standard for Presentation of Comprehensive
Income" (ASBJ Statement No.25, issued on June 30, 2010). The
amount of “Total valuation, translation adjustments and others” as ofMarch 31, 2010 on balance sheet is presented as “Total accumulated
other comprehensive income.”
However, the amount of "Total accumulated other comprehensive
income" for the year ended March 31, 2010 is shown as "Total
valuation, translation adjustments and others".
Effective the fiscal year ended March 31, 2011, the Company
applies "Accounting Standard for Disclosures about Segments of anEnterprise and Related Information" (ASBJ Statement No.17, issued
on March 27, 2009) and the "Guidance on the Accounting Standard
for Disclosures about Segments of an Enterprise and RelatedInformation" (ASBJ Guidance No.20, issued on March 21, 2008).

(Interest rate ﬂuctuation risk related to short-term loans andlong-term debt)
Loans are mainly used to fund oil and natural gas exploration projects
and the construction or expansion of domestic pipelines and LNG
receiving terminal and others. The borrowing period is determinedconsidering the ﬁnancial prospects of the project and useful lives ofthe facilities. Loans with variable interest rates are exposed to interest
rate fluctuation risk. However, the Company leverages in line withthe above policy. Loans with ﬁxed interest rates include ﬁxed interest
expenses under special treatment of interest rate swaps.

(Exchange rates ﬂuctuation risk related to assets and liabilities
in foreign currencies)

Trade receivables—accounts receivable-trade and accounts
receivable-other—are comprised mainly from sales of oil and naturalgas. Main trading partners are national oil companies, major oilcompanies and others. In line with the criteria for trading and credit
exposure management, the Company properly analyzes the status oftrading partners for early detection and reduction of default risks.

As most of the Company's business consists of its overseas business,
the Company is exposed to exchange ﬂuctuation risk due to a large
portion of monetary assets and liabilities held in foreign currencies
such as cash and deposits, accounts receivables and loans requiredin overseas projects. As a result of fiscal year-end conversion, yen
appreciation causes a foreign exchange loss on assets and a foreignexchange gain on liabilities while yen depreciation causes a foreignexchange gain on assets and a foreign exchange loss on liabilities.
For this reason, foreign exchange gains and losses are largely offset
and the position between assets and liabilities in foreign currencies
is maintained. At present, the Company is in the position of incurring
foreign exchange losses when the foreign exchange rate resultsin yen appreciation. The Company timely converts to yen to avoid
excess holding of foreign currency deposits on hand and engages
in hedging transactions, based on the Company policy, partly
using foreign currency forward exchange contracts as necessary for
expected foreign currency trading.

(Market price ﬂuctuation risk related to securities)(Management of derivative transactions)

For marketable securities and investment securities exposed tomarket price fluctuation risk, analysis of market values is regularly
reported to the Management Committee. For shares of stock, theCompany holds shares of trading partners and others to establish
close and smooth relationships for the purposes of maintaining a
medium- to long-term stable business. Of these shares, the Company
holds a part of these shares for the purpose of investment. As forbonds, the Company mainly holds government bonds with shortterm maturities to reduce market price ﬂuctuation risk.

For the above derivative transactions such as interest rate swap
transactions and forward exchange contracts, the Company follows
its derivative transactions management outline. Further, the Company
only transacts with financial institutions with high credit ratings to
reduce credit risks for the use of derivatives.

(b) Details of ﬁnancial instruments,
associated risk and risk management(Credit risks related to trade receivables)(Management of the liquidity risk related to ﬁnancing)
The finance unit controls cash management based on a monthly
financing plan prepared by each project division and secures
sufﬁcient liquidity on hand to be prepared for liquidity risks.

Financial /Corporate Information

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 oninvestments 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 for recoverable
accounts under production sharing is provided for probable losses ondevelopment investment individually estimated for each project.

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.

106

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011107

5. SECURITIES

These securities are not included in (a) as they are assumed to have no market value and it is extremely difﬁcult to determine their fair value. For
shares of exploration companies among unlisted securities and stocks of subsidiaries and afﬁliates, an allowance is provided for investments in
exploration at an estimated amount based on the ﬁnancial position of the investees.

(a) Information regarding other securities as of March 31, 2010 and 2011 is as follows:
Millions of yen
Acquisition cost

March 31, 2010

Securities with fair values exceeding their acquisition cost:
Stock
Bonds:
Public bonds
OthersSubtotal
Securities with acquisition costs exceeding their fair value:
Stock
Bonds:
Public bonds
Other debt securities
Subtotal
Total
Millions of yen
March 31, 2011

Acquisition cost

Unrealized gain
(loss)

Carrying value

Securities with fair values exceeding their acquisition cost:¥ 42,521¥ 49,877
Stock
Bonds:
336,349
336,983
Public bonds
8,500
8,503
Corporate bonds
6,733
7,694
Others394,103
403,057
Subtotal
Securities with acquisition costs exceeding their fair value:
10,535
8,664
Stock
Bonds:
374,128
372,900
Public bonds
28,50928,334
Corporate bonds
33,86832,942Other debt securities
198,255
195,213
Others645,295
638,053
Subtotal¥1,039,398¥1,041,110
Total(d) Redemption schedule for securities with maturity dates classiﬁed as other securities as of March 31, 2011 is as follows:
Unrealized gain
(loss)

Carrying value¥ 28,825¥ 43,779¥14,954

266,324
6,733
301,882

267,953
8,722
320,454

1,629
1,989
18,572

26,87322,396(4,477)103,00740
129,920¥431,802

101,42337
123,856¥444,310(1,584)(3)(6,064)¥12,508

Thousands of U.S. dollars
Unrealized gain
Acquisition cost
Carrying value(loss)¥ 7,356$

511,377$

599,844$ 88,467

634
3
961
8,954

4,045,087
102,225
80,974
4,739,663

4,052,712
102,261
92,531
4,847,348

7,625
36
11,557
107,685(1,871)

126,699

104,197(22,502)(1,228)(175)(926)(3,042)(7,242)¥ 1,7124,499,435
342,862
407,3122,384,306
7,760,614$12,500,277

4,484,666
340,758
396,176
2,347,721
7,673,518$12,520,866(14,769)(2,104)(11,136)(36,585)(87,096)$ 20,589

Millions of yen

March 31, 2011

Bonds:
Public bonds
Corporate bonds
Other debt securities
OthersTotal

1 year or lessMore than 1
year but lessthan 5 years¥133,000
3,500——¥136,500¥526,500
33,50033,445
198,146¥791,591

Thousands of U.S. dollars

More than 5More than 10
years but lessyears
than10 years¥41,500———¥41,500

1 year or lessMore than 1
year but lessthan 5 years$1,599,519
42,093——$1,641,612$6,331,930
402,886
402,225
2,382,995$9,520,036

¥—
—
—
—
¥—

More than 5More than 10
years but lessyears
than10 years$499,098———$499,098

$—
—
—
—
$—

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of March 31, 2010 and 2011 are as follows:
Millions of yen
March 31,

Short-term borrowings from banks and others(Interest rates ranging from 1.215% to 1.325% and from1.037% to 1.325% at March 31, 2010 and 2011)
Total

Thousands of U.S. dollars

2010

2011

2011

¥160

¥160

$1,924¥160¥160$1,924Long-term debt as of March 31, 2010 and 2011 is as follows:
Millions of yen
March 31,

Loans from banks and others, due through 2025
(Interest rates ranging from 0.473% to 2.700% and from0.776% to 2.700% at March 31, 2010 and 2011)
Less: Current portion

Thousands of U.S. dollars

2010

2011

2011

¥ 240,223¥272,987$3,283,067

4,712¥ 235,511

4,281¥268,706

51,486$3,231,581(b) Information regarding sales of securities classiﬁed as other securities for the years ended March 31, 2009, 2010 and 2011 is as follows:

Proceeds from sales
Gain on sales
Loss on sales¥ 127,974
107¥—
Millions of yen

March 31,

Thousands of U.S. dollars

2010

2011
Gain on
sales

2011

Proceeds
from sales

Gain onsales

Loss on
sales

Stock
¥
—
Bonds:
Public bonds
101,000
Other debt securities
321
Total
¥101,321

¥—

¥—

¥

767

¥138

¥ 55

$

9,224

$1,660

$ 662

—
—
¥—

—
—
¥—

10,080—¥10,847

—
—
¥138

385
—
¥440

121,227—$130,451——$1,6604,630—$5,292Years ended March 31,

Proceeds
from sales

Loss onsales

Proceeds
from sales

Gain onsales

Assets pledged as of March 31, 2010 and 2011 are as follows:
Millions of yen

2009

Loss onsales

Redemption and cancellation of bonds and others, which were previously included in sales proceeds are excluded from the proceeds from theyear ended March 31, 2011.
There were no proceeds from sales of other securities exclude redemption and cancellation of bonds and others for the year ended March 31,
2010.

Buildings and structures
Wells
Machinery, equipment and vehicles
Land
Investment securities
Other
Total

Thousands of U.S. dollars

2010

2011

2011

¥ 2,240
3,445
9,512
660
9,385
246
¥25,488¥ 2,141
4,774
9,049
660
8,237
239
¥25,100$ 25,749
57,414
108,827
7,938
99,0622,874$301,864

The above assets were pledged against the following liabilities:
Millions of yen
March 31,

Short-term loans
Accounts payable—other
Long-term debt
Other
Total

Thousands of U.S. dollars

2010

2011

2011

¥ 2,130
5,497
6,153
17
¥13,797¥ 2,130
3,993
4,023
17
¥10,163$ 25,616
48,022
48,382
205$122,225

Financial /Corporate Information

Millions of yen
Year ended March 31,

In addition, investment securities of ¥5,572 million as of March 31, 2010 and ¥4,928 million ($59,272 thousand) as of March 31, 2011 arepledged as collateral for the BTC Pipeline Project Finance.

(c) Components of securities for which it is extremely difﬁcult to determine fair value as of March 31, 2010 and 2011 are summarized as follows:
Millions of yen
March 31,

Other securities:
Unlisted securities
Preferred securities
Stocks of subsidiaries and afﬁliates
Total

108

INPEX CORPORATION Annual Report 2011

Thousands of U.S. dollars

2010

2011

2011

¥30,623
5,000
36,714¥72,337¥27,819
5,000
38,882¥71,701$334,564
60,132
467,613$862,309

The aggregate annual maturities of long-term debt subsequent to March 31, 2011 are summarized as follows:
Years ending March 31,

2012
2013
2014
2015
2016
2017 and thereafter
Total

Millions of yen

¥

4,281
4,662
3,757
5,609
5,128
249,550¥272,987

Thousands of U.S. dollars$

51,48656,06745,18367,456
61,6723,001,203$3,283,067

INPEX CORPORATION Annual Report 2011109

7. INCOME TAXES

8. COMPREHENSIVE INCOME

The Company and its domestic consolidated subsidiaries are subject to a number of taxes based on income which, in the aggregate, resulted ina statutory tax rate of approximately 36.2% for the ﬁscal years ended March 31, 2009, 2010 and 2011.
The effective tax rates reﬂected in the consolidated statements of income for the ﬁscal years ended March 31, 2009, 2010 and 2011 differ
from the statutory tax rate for the following reasons:Comprehensive income and other comprehensive income for the year ended March 31, 2010 are as follows:

Millions of yen

Year ended March 31, 2010

Years ended March 31,

2009

2010

2011

Comprehensive income attributable to shareholders of INPEX CORPORATION

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
Net operating losses utilized
Equity in (earnings) losses of afﬁliates
Amortization of goodwill
Differences of effective tax rates applied to tax effect accounting
Other
Effective tax rates

36.2%

36.2%

36.2%

Comprehensive income attributable to minority interests
Total

—
(1.4)
2.6
75.6
(18.4)(18.1)
—
(0.1)
0.4
—
(0.5)
76.3%

—
(1.5)
0.7
69.9
(20.1)(14.2)
(1.8)
0.2
0.6
2.8
0.8
73.6%

0.1
(0.8)
2.4
68.9
(18.8)(14.0)
(0.8)
(0.4)
0.5
(0.3)
(0.5)
72.5%

Deferred tax assets:
Investments in related parties
Loss on revaluation of land
Loss on valuation of investment securities
Recoverable accounts under production sharing (foreign taxes)
Allowance for investments in exploration
Foreign taxes payable
Net operating loss
Accumulated depreciation
Accrued retirement beneﬁts
Translation differences of assets and liabilities denominated in foreign
currencies
Liabilities for site restoration and decommissioning costs
Asset retirement obligations
Exploration expenses
Allowance for doubtful accounts
Other
Total gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Foreign taxes
Translation differences of assets and liabilities denominated in foreign
currencies
Reserve for overseas investment loss
Translation differences due to an application of purchase accounting
methodReserve for exploration
Unrealized holding gain on securities
Other
Total deferred tax liabilities
Net deferred tax assets

INPEX CORPORATION Annual Report 2011(b) Other comprehensive income

2010

2011

¥ 62,493
4,854
11,348
4,389
6,721
21,846
12,96424,787
2,773¥ 64,881
4,855
6,091
4,565
6,528
37,41525,28736,444
2,565

111

1,000

12,026

3,912
—
5,781
—
10,438172,417(138,382)
34,035

—
4,570
7,780
5,159
11,914
219,054(153,220)
65,834—54,961
93,56662,045
143,283
2,634,444(1,842,694)
791,750

7,558

32,883

395,466

Unrealized holding gain on securities¥19,1716,807
227¥26,205

Translation adjustments
Share of other comprehensive income of associates accounted for by the equity method
Total

2011
$

780,289
58,38873,25354,90178,509449,970
304,113438,292
30,848

As of March 31, 2011, the total number of the Company's sharesissued consisted of 3,655,809 shares of common stock and 1 specialclass share. A number of common stock increased by 1,297,400
shares from as of March 31, 2010 due to the offering new shares by
1,216,000 shares and the third-party allotment by 81,400 shares,
respectively.
The special class share has no voting rights at the commonshareholders' meeting, but the ownership of the special classshare gives its holder a right of veto over certain important mattersby imposing the requirement to obtain a class vote. However,requirements stipulated in the Articles of Incorporation need to be
met in cases involving the appointment or removal of directors, thedisposition of important assets or the exercise of the veto over;• Appointment and removal of directors• Disposition of all or part of the Company's material assets• Amendments to the Article of Incorporation with respect to (i) the
purpose of the Company's business and (ii) the granting of voting
rights to the Company's shares other than common stock

Yen

8,801

15,937

191,666

Years ended March 31,

6,541

78,665

Net income

2,894

2,429

29,212

Cash dividends

5,958
435
3,260
67,443¥ (1,609)$

71,654
5,231
39,206811,100(19,350)• Mergers, share exchanges or share transfers• Capital reduction• Dissolution
The special class shareholder may request the Company to acquire
the special class share. Besides, the Company may also acquire
the special class share by a resolution of a meeting of the Board of
Directors in case of that special class share is transferred to a nonpublic subject.
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) should betransferred to capital reserve and legal reserve, respectively, up to
the point where total amount of capital reserve and the legal reserve
equals 25% of the common stock account.
Such distribution can be made at any time by a resolution of theshareholders, or by the Board of Directors if certain conditions aremet, but neither capital reserve nor legal reserve is available for
distributions.

10. AMOUNTS PER SHARE

7,098

4,499
390
2,788
34,028¥
7

Millions of yen

Year ended March 31, 2010

Net assets

U.S. dollars

2009

2010

2011

2011

¥ 61,601.60¥ 45,553.56¥ 40,832.40$ 491.07

8,000.00

5,500.00

6,000.00

72.16¥540,100.10¥589,548.88¥546,958.90$6,577.98

Net income per share is computed based on the net income available for distribution to shareholders of common stock and the average numberof shares of common stock outstanding during the year.
Cash dividends per share represent the cash dividends proposed by the Board of Directors together with the interim cash dividends paid.
Net assets per share are computed based on the net assets excluding minority interests and the number of common stock outstanding at theyear end.

INPEX CORPORATION Annual Report 2011

Financial /Corporate Information

Thousands of U.S.
dollars

Millions of yen
March 31,

¥131,675
11,431¥143,106

9. NET ASSETS

The signiﬁcant components of deferred tax assets and liabilities as of March 31, 2010 and 2011 are as follows:

110(a) Comprehensive income

11111. DERIVATIVES(b) Retirement beneﬁt expenses for the years ended March 31, 2009, 2010 and 2011 are as follows:

Fair value of derivatives
The special treatment of interest rate swaps and hedge accounting is applied to all derivative transactions as of March 31, 2010 and 2011. Fairvalues of derivatives are included in the estimated fair value of the long-term debt, as disclosed in Note 12.(a), since they are accounted for as apart of long-term debt.

Thousands of
U.S. dollars

Millions of yen
Years ended March 31,

2009

12. OTHER FINANCIAL INSTRUMENTS

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial gain or loss
Retirement beneﬁt expenses¥1,001282(86)
462¥1,659(a) The carrying value and estimated fair value of ﬁnancial instruments excluding securities and investment securities which are disclosed in Note5.(a) and derivatives which are disclosed in Note 11 as of March 31, 2010 and 2011 are as shown below. The following summary also excludes
cash and cash equivalents and accounts receivable-trade for which fair values approximate their carrying amounts.

Except for the above retirement beneﬁts expenses, in accordance with the change of retirement beneﬁt plan resulting from the merger of theCompany with non-surviving companies, past service gain amounting to ¥644 million was credited to other income (other) during the year
ended March 31, 2009.

Millions of yen

March 31,

Carrying value

Short-term borrowings and current
portion of long-term debt
Long-term debt

¥

4,872

¥235,511

2011

¥

4,935

¥237,024

2011

2011

¥ 830
288
(152)
134
¥1,100$ 9,982
3,464(1,828)1,611$13,229

4,441¥¥268,706(c) The assumptions used in accounting for the above plans are as follows:

2011
Estimated
fair value

Carrying value

¥

¥ 803
284
(33)
(310)
¥ 744

Thousands of U.S. dollars

2010
Estimated
fair value

2010

Carrying value

4,484

$

¥270,572

53,410$3,231,581

Estimated
fair value

Years ended March 31,$

Discount rate
Expected return on plan assets

53,927$3,254,023(b) For other ﬁnancial instruments, computation methods of estimated fair value are as shown below.

Period for amortization of actuarial gain or loss
Period for amortization of past service cost

2009

2010

2011

2.0%
0.5%
Amortized as
incurred
Amortized as
incurred

2.0%
0.5%
Amortized as
incurred

2.0%
2.0%
Amortized as
incurred—̶Millions of yen

Thousands of
U.S. dollars

Short-term borrowings and current portion of long-term debt
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 these items are settled in a short periods of time and its fair value is almost the same as the carrying
value.

15. ASSET RETIREMENT OBLIGATIONSLong-term debt

The changes in asset retirement obligations for the year ended March 31, 2011 are as follows:

The estimated fair value of long-term debt is calculated by applying a discount rate to the total of principal and interest. The discount rate isbased on the assumed interest rate if a similar new loan is entered into.

2011

2011

¥ 16,564
1,281
714$199,206
15,406
8,587(5,320)(586)¥ 12,653(63,981)(7,047)$152,171

13. RESEARCH AND DEVELOPMENT EXPENSES

New obligations

Research and development expenses included in selling, general and administrative expenses amounted to ¥643 million, ¥470 million and ¥449
million ($5,400 thousand) for the years ended March 31, 2009, 2010 and 2011, respectively.

Spending on existing obligations

Accretion

Thousands of
U.S. dollars

March 31,

2010

2011

2011

Retirement beneﬁt obligations
Plan assets at fair value¥(15,379)
7,793¥(15,593)
8,614$(187,529)
103,596

Unfunded retirement beneﬁt obligation
Unrecognized actuarial gain or loss
Accrued retirement beneﬁts to employees(7,586)—¥ (7,586)(6,979)—¥ (6,979)(83,933)—$ (83,933)

INPEX CORPORATION Annual Report 2011

16. GOODWILL
The changes in the carrying amount of goodwill for the years ended March 31, 2009, 2010 and 2011 are as follows:
Thousands of U.S.
dollars

Millions of yen
Years ended March 31,

2009

2010

2011

Balance at beginning of the year
Goodwill acquired during the year
Amortization of goodwill
Balance at end of the year

¥ 121,644¥ 114,884(2)(6,759)¥ 108,123¥108,123(1)(6,760)¥101,362

̶
(6,760)¥ 114,884

2011$1,300,337(12)(81,299)$1,219,026

INPEX CORPORATION Annual Report 2011

Financial /Corporate Information(a) Retirement beneﬁt obligations as of March 31, 2010 and 2011 are as follows:
Millions of yen

Other (b)Balance at end of the year(a) The balance at beginning of the year indicates obligations occurred by applying “Accounting Standard for Asset Retirement Obligations”(ASBJ Statement No. 18 issued on March 31, 2008) and “Guidance on Accounting Standard for Asset Retirement Obligations” (ASBJ
Guidance No. 21 issued on March 31, 2008) at the beginning of the year ended March 31, 2011.
(b) "Other" mainly includes the changes in foreign currency exchange rates.

14. RETIREMENT BENEFITS

112

Year ended March 31,

Balance at beginning of the year (a)113

17. LEASES

Overseas sales

Future minimum lease payments subsequent to March 31, 2011 for operating lease transactions are summarized as follows:

Overseas sales, which include sales (other than exports to Japan) of its overseas subsidiaries, for the years ended March 31, 2009 and 2010 are
summarized as follows:(a) As lessee

Millions of yen

Years ending March 31,

Millions of yen

Thousands of U.S. dollars

20122013 and thereafterTotal¥ 3,476
13,589¥17,065$ 41,804
163,428$205,232

Asia & Oceania (a)Year ended March 31, 2009
Overseas sales
Consolidated net sales
Overseas sales as a percentage of consolidated net sales

Other (b)¥371,102¥46,281

34.5%

4.3%

Total

¥417,383
1,076,165
38.8%(a) Asia & Oceania: South Korea, Taiwan, Indonesia, Singapore, Thailand, China, Philippines, Australia(b) Other: USA(b) As lessor
Years ending March 31,

Millions of yen

2012
2013 and thereafter
Total

Thousands of U.S. dollars

¥ 79
249
¥328

$ 950
2,995
$3,945

Millions of yen
Asia & Oceania (a)Year ended March 31, 2010
Overseas sales
Consolidated net sales
Overseas sales as a percentage of consolidated net sales

Other (b)¥271,231¥53,425

32.3%

6.3%

Total

¥324,656
840,427
38.6%(a) Asia & Oceania: South Korea, Taiwan, Indonesia, Singapore, Thailand, Philippines, Australia(b) Other: USA, Italy

18. CONTINGENT LIABILITIES

Segment information for the year ended March 31, 2011
Overview of reportable segments

Segment information for the years ended March 31, 2009 and 2010

The reportable segments for the Group’s oil and gas development activities are components of individual mining area and others for which
separate financial information is available in order to make the Group management decisions by the Board of Directors. Since the Group
operates oil and gas businesses globally, the Group’s reportable segments are the mining areas and others by geographical region, categorized
by “Japan”, “Asia & Oceania” (mainly Indonesia, Australia and East Timor), “Eurasia (Europe & NIS)” (mainly Azerbaijan), “Middle East & Africa”(mainly UAE) and “Americas.”
The Company produces oil and natural gas in each segment. In addition, the Company conducts marketing activities for petroleum products
and others in “Japan” segment.

Business segment information

Basis of measurement for sales, income (loss), assets and other items by reportable segment

As net sales, operating income and total assets of the oil and natural gas business constituted more than 90% of the consolidated totals for theyears ended March 31, 2009 and 2010, the disclosure of business segment information has been omitted.

Accounting policies for the reportable segments are substantially the same as those described in “Note 2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES.”

Geographical segment information

Information on sales and income (loss), assets and other items by reportable segment

19. SEGMENT INFORMATION

The geographical segment information for the Company and its subsidiaries for the years ended March 31, 2009 and 2010 is summarized asfollows:
Millions of yen
Year ended March 31, 2009

Sales to third parties
Total sales
Operating expenses
Operating income (loss)
Total assets

Japan

Eurasia
Asia & Oceania(Europe & NIS)(a)(b)

¥ 93,423
93,42359,54033,883¥208,326¥435,824
435,824
150,416
285,408¥409,558¥ 73,688
73,68839,223
34,465¥365,914

Middle East
& Africa (c)Americas
(d)

Total

¥463,151
463,151
144,460
318,691¥189,270¥10,079
10,07911,419(1,340)¥85,169¥1,076,165
1,076,165
405,058
671,107¥1,258,237

Eliminations

¥

—
—
7,840
(7,840)¥509,808

Consolidated¥1,076,165
1,076,165
412,898
663,267¥1,768,045(a) Asia & Oceania: Indonesia, Australia, East Timor, Vietnam(b) Eurasia (Europe & NIS): Azerbaijan, Kazakhstan, UK(c) Middle East & Africa: UAE, D.R.Congo, Iran, Libya, Egypt, Algeria, Angola(d) Americas: Venezuela, Ecuador, USA, Canada, Suriname, Brazil

Reportable segments
Year ended March 31, 2011

Asia &
Oceania

Sales to third parties
Total sales
Segment income (loss)
Segment assets
Other items
Depreciation andamortization
Amortization of goodwill
Investment to associates
accounted for by theequity method
Increase of tangible ﬁxed
assets and intangible
assets¥104,525
104,525
25,959240,239¥406,828
406,828
235,814432,323¥ 68,319
68,31936,461
503,471¥350,735
350,735
243,113245,865¥12,673
12,673(3,035)68,023¥ 943,080
943,080
538,3121,489,921

18,457

17,469

9,013

5,112

2,914

(1)

—

—

—

(192)

—

20,067—

7,084¥ 25,697¥ 45,974¥ 28,362¥ 10,838

Year ended March 31, 2011

Japan

Asia &
Oceania

Year ended March 31, 2010

Sales to third parties
Total sales
Operating expenses
Operating income
Total assets

Eurasia
Asia & Oceania (Europe & NIS)(a)(b)

¥ 93,959
93,95961,40432,555¥240,879¥352,383
352,383
161,313
191,070¥451,167¥ 73,574
73,57433,80539,769¥446,849

Middle East
& Africa (c)Americas
(d)

Total

¥303,819
303,819
98,247
205,572¥229,843¥16,692
16,692
15,664
1,028¥85,242¥ 840,427
840,427
370,433
469,994¥1,453,980

Eliminations

¥

—
—
8,326
(8,326)¥559,798

Consolidated¥ 840,427
840,427
378,759
461,668¥2,013,778(a) Asia & Oceania: Indonesia, Australia, East Timor, Vietnam(b) Eurasia (Europe & NIS): Azerbaijan, Kazakhstan, UK(c) Middle East & Africa: UAE, D.R.Congo, Iran, Libya, Egypt, Algeria, Angola(d) Americas: Venezuela, Ecuador, USA, Canada, Suriname, Brazil
The geographical segment information for the Company and its subsidiaries has been reflected in the regions based on the location ofoperations.

114

INPEX CORPORATION Annual Report 2011

Eurasia
Middle East &(Europe & NIS)
AfricaSales to third parties
Total sales
Segment income (loss)
Segment assets
Other items
Depreciation andamortization
Amortization of goodwill
Investment to associates
accounted for by theequity method
Increase of tangible ﬁxed
assets and intangible
assets$1,257,065
1,257,065
312,195
2,889,224$4,892,700
4,892,700
2,836,007
5,199,315$ 821,636
821,636
438,497
6,054,973$4,218,100
4,218,100
2,923,788
2,956,885

221,972

210,090108,395

61,47935,045636,981

15,394652,375

(12)

—

—

—

(2,309)(2,321)

83,62081,299—241,335—

85,19561,576388,106—

388,106$ 309,044$ 552,904$ 341,094$ 130,343

Americas

Adjustments
(a)

Total

¥

Consolidated(b)——(8,569)1,190,459¥ 943,080
943,080
529,7432,680,380

52,965

1,280

54,245

(193)

6,953

6,760

5,120

32,271—

32,271¥2,929¥ 113,800

566¥ 114,366¥

Reportable segments

Millions of yen
JapanMillions of yen

Japan

Thousands of U.S. dollars

Eurasia
Middle East &(Europe & NIS)
AfricaAmericasTotal$152,411 $11,341,912
152,411 11,341,912(36,500)
6,473,987
818,076 17,918,473

Adjustments(a)Consolidated(b)$$ 35,226 $ 1,368,611 $— $11,341,912— 11,341,912(103,055)
6,370,932
14,317,005 32,235,478

Financial /Corporate Information

As of March 31, 2011, the Company and its consolidated subsidiaries were contingently liable as guarantors of indebtedness of afﬁliates in theaggregate amount of ¥28,070 million ($337,583 thousand).

6,807 $ 1,375,418(a) Adjustments include elimination of inter-segment transactions and corporate incomes, expenses and assets that are not allocated to areportable segment.
(b) Segment income is reconciled with operating income on the consolidated statements of income.

INPEX CORPORATION Annual Report 2011115

Report of Independent Auditors

Products and service information:
Sales

Millions of yen

Thousands of U.S. dollars

Year ended March 31,

2011

Crude oil
Natural gas (excluding LPG)

¥557,911
334,650$ 6,709,693
4,024,654

2011

LPG
Other
Total

21,59728,922¥943,080

259,736
347,829$11,341,912

Geographical information:
Sales

Millions of yen

Year ended March 31,

2011

Japan
Asia & Oceania
OthersTotal¥573,132
346,717
23,231¥943,080

Tangible ﬁxed assets

Millions of yen

As of March 31,

2011

Japan
Australia
OthersTotal¥211,088
96,50072,274¥379,862

Thousands of U.S. dollars

2011$ 6,892,748
4,169,777
279,387$11,341,912

Thousands of U.S. dollars

2011$2,538,641
1,160,553
869,200$4,568,394

Information by major customer:
Sales from a single group of external customers amounted to ¥254,542 million ($3,061,239 thousand) arising from sales by the Asia & Oceania
segment for the year ended March 31, 2011.

20. RELATED PARTY TRANSACTIONSThere was the following related party transaction for the year ended March 31, 2009:

Afﬁliated company
Name of relatedparty

MI Berau B.V.

Transaction
detailAmounts

Serve the ofﬁcer Guarantee for
Exploration and development of natural gas inDirectly
Amsterdam, ½656,279
concurrently,
debt in U.S.
Berau Block conducted in West Papua province,
44.00%
Netherlands thousand
capital subscription
dollars *Indonesia and Tangguh LNG Project¥ 20,380
millionLocation

Capitalinvestment

Nature of operations

Description of the
Votinginterest business relationship* The Company guarantees financial institution loans to finance developments of the LNG projects. The guaranteed amounts above is asof March 31, 2009.

Report of Independent Auditors

The Board of Directors
INPEX CORPORATION
We have audited the accompanying consolidated balance sheets of INPEXCORPORATION and consolidated subsidiaries as of March 31, 2011 and 2010,
the related consolidated statements of income, changes in net assets, andcash ﬂows for each of the three years in the period ended March 31, 2011, andconsolidated statement of comprehensive income for the year ended March
31, 2011, all expressed in yen. These ﬁnancial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese ﬁnancial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Japan. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the ﬁnancial statements.
An audit also includes assessing the accounting principles used and signiﬁcantestimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the ﬁnancial statements referred to above present fairly, in allmaterial respects, the consolidated ﬁnancial position of INPEX CORPORATION
and consolidated subsidiaries at March 31, 2011 and 2010, and the consolidated
results of their operations and their cash ﬂows for each of the three years in the
period ended March 31, 2011 in conformity with accounting principles generally
accepted in Japan.

There was the following related party transaction for the year ended March 31, 2010 :Name of relatedparty

MI Berau B.V.

Transaction
detailAmounts

Serve the ofﬁcer Guarantee for
Exploration, development, production and sales of
Directly
Amsterdam, ½656,279
concurrently,
debt in U.S.
natural gas in Berau Block conducted in West Papua
44.00%
Netherlands thousand
capital subscription
dollars *province, Indonesia and Tangguh LNG Project¥ 22,459
millionLocation

Capitalinvestment

Nature of operations

Description of the
Votinginterest business relationship* The Company guarantees financial institution loans to finance developments of the LNG projects. The guaranteed amounts above is asof March 31, 2010.

The U.S. dollar amounts in the accompanying consolidated ﬁnancial statementswith respect to the year ended March 31, 2011 are presented solely forconvenience. Our audit also included the translation of yen amounts into U.S.
dollar amounts and, in our opinion, such translation has been made on thebasis described in Note 3.

Financial /Corporate Information

Afﬁliated company

June 28, 2011

There were no related party transactions for the year ended March 31, 2011.

116

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011117