1
Messagefrom the President

Message fromthe President
Looking Back at the Past YearFor the ﬁscal year ended March 31, 2016, in a harsh market environment with declining crude oil prices, net sales
decreased 13.8% year on year to ¥1,009.6 billion, while
net income attributable to owners of parent dropped
78.4% to ¥16.8 billion. Brieﬂy reviewing oil price trends
over the past year, although the oil price rose as far as a
mid-US$60 per barrel in early May 2015, the price subsequently fell, dropping by an average of more than 40%
during the ﬁscal year. Under these circumstances, INPEX
was forced to record an impairment loss for some projects already in production.
On the other hand, net production volume, which is a
key pillar supporting the Company’s earnings, increased
about 26% year on year to roughly 514 thousand BOED.
Proved reserves, which represent a source of future earnings, rose 34% compared to the previous ﬁscal year-end
to about 3.26 billion BOE. The increases are both dueto the contribution from ADCO Onshore Concession inAbu Dhabi, U.A.E. acquired in April 2015. Summarizing
the progress of major projects now underway, development work on offshore and onshore facilities for theIchthys LNG Project is steadily moving forward along aschedule that was updated in September of last year. In
light of an increase in natural gas reserves, we submitted
a revised development plan for the Abadi LNG Project in
September 2015 and received a notice from government
authorities calling for a review of the development plan
based on onshore LNG. Moving forward, we will negotiate with government authorities for the optimal development of the project with the goal of early start-up ofdevelopment.
INPEX, an oil and gas E&P company, has a responsibility to fulﬁll its social mission through its business activities, irrespective of short-term ﬂuctuations in demand.
Bearing in mind that crude oil prices could remain low fora certain period of time, after taking countermeasures forthat, we will continue to make necessary investments infuture growth and undertake various initiatives to maintain the stable dividends of the past.

Toshiaki Kitamura
President & CEO

INPEX CORPORATION Annual Report 201601

Cost Reduction Initiatives
Crude oil prices, which had remained at morethan $100 per barrel until the middle of 2014,
dropped to under $30 per barrel at the beginning of 2016, a mere year and a half later.
Recently, oil prices have bounced back somewhat and it appears that prices will continue toconverge toward a new equilibrium point overthe medium to long term. However, what weneed is to shift away from the over $100 per
barrel era mindset that has continued for thepast several years.
The Company is dealing with a senseof urgency regarding the current state of oil
prices, which have dropped sharply in a shortperiod of time. Speciﬁcally, from the perspective of importance and urgency we must:
Continue to implement and steadily
carry out according to schedule importantdevelopment projects that support Company
growth, such as the Ichthys LNG Project, andinvestments that we should pursue.
Reduce production costs and development and exploration expenditure, and in particular review the schedule and costs of exploration projects to reduce investments.
Maintain stable dividends to all shareholders.
With these three policies, we are committed to minimizing the impact on oil pricedecline performance for the foreseeable future.
Since the ﬁscal year ended March 31,
2015, we have continuously worked to reduceinvestments and in the ﬁscal year ended March
31, 2016, even though we invested steadilyin Ichthys, we reduced investments in otherprojects. As a result, total investments cameto approximately $8.1 billion, a roughly $1.3
billion decrease (about 14%) compared with
about $9.4 billion in the ﬁscal year ended
March 31, 2015. In the ﬁscal year ending March
31, 2017, we will continue to reduce investments and expect total investments to reachabout $6.3 billion, an almost 22% reduction
from that of the year ended March 31, 2016.
In addition, projects in production thatdeveloped high cost structures in the last few
years have cut back their production costs. Inmajor production projects such as the Offshore
Mahakam Block in Indonesia and the ACG Oil
Fields in Azerbaijan, after reviewing the unit
price of work contracts and reducing indirect
costs, we signiﬁcantly lowered production
costs. With the reduction of production costs
per barrel, and the impact of increased production volume, in the ﬁscal year ended March 31,
2016, the $11.2 per barrel cost of the previous
ﬁscal year was lowered to $7.8 per barrel. Net
income attributable to owners of parent in theﬁscal year ended March 31, 2016 decreased
substantially due to an impairment loss, but at
the same time, we believe these investments
and cost reduction efforts contributed by propping up proﬁts.

Shifts in Investment-Reduction Measures

Production Cost per BOE***

Development*(US$ million)

Exploration

Other capital expenditures**(US$/BOE)

9,381

11.2
8,084

7.8

6,320

8,464

30% YOY
reduction

7,325
6,060

662
255

2015/3 (Actual)327432
2016/3 (Actual)

160
100

2017/3 (Forecast)*Includes investments in Ichthys downstream business**Mainly investments in Naoetsu LNG Terminal and domestic pipeline network

02

INPEX CORPORATION Annual Report 20162015/3 (Actual)***Excluding royalties

2016/3 (Actual)

1
Messagefrom the President

Aiming to Achieve Our Growth Targets
We have set three growth targets for sustainablegrowth.
To begin with, if we report our growth target’s ﬁrst pillar of “Continuous Enhancement ofE&P Activities” from the standpoint of the indicators for that progress, reserves (total of crude
oil and natural gas) as of March 31, 2016 were
net proved reserves of about 3.26 billion BOE
and net probable reserves of about 1.71 billion
BOE. The total of proved and probable reserves
was roughly 4.97 billion BOE, an increase ofabout 23%, or 0.93 billion BOE compared withthe previous year-end. Following the increasein proved reserves, the reserve replacement
ratio (RRR) (proved reserve increase duringyear/ production volume during year, 3-yearaverage) rose substantially, from 100% in theprevious ﬁscal year, to 321% this ﬁscal year.
Moreover, net production volume (total ofcrude oil and natural gas) increased about
106,000 barrels per day, or about 26% year onyear, to roughly 514,000 barrels per day. These
increases in reserves and production volumes
were achieved due to the acquisition of a participating interest of the Abu Dhabi onshore
ADCO Block which is in production.
Looking at the progress of Continuous
Enhancement of E&P Activities by individual
project, development work on the Australia
Ichthys LNG Project has steadily progressedin preparation for the start of production in

the third quarter (July–September) of 2017.
As for offshore facilities, we continue to move
forward with the construction of an offshore
central processing facility (CPF) and a ﬂoating production storage and ofﬂoading (FPSO)
facility. The installation of all topside modules
has already been completed for both of these.
At present, we are performing internal construction and commissioning. In April 2016, wecompleted the onsite installation of the chainthat will anchor the CPF and FPSO offshore.
Other offshore work that we continue to perform is production well drilling.
We have delivered and installed all modules for the ﬁrst train (natural gas liquefaction
facilities) for onshore facilities and are now
conducting connection and joint work.
Although we are simultaneously moving
forward on both offshore and onshore facilities and pursuing a variety of tasks, we arepreparing to sequentially operate each facility
and are working diligently to begin production
while paying the utmost care to safety.
Based on the fact that the natural gas
reserves of the Indonesian Abadi LNG Project increased due to the drilling of additional
appraisal wells and the results of subsequentstudies, we reviewed the development plans
for an FLNG with a 2.5 million ton annual LNG
production capacity and submitted a revisedplan to government authorities in September

Net Proved Reserves andReserve Replacement Ratio (3-year average)

Net Production

Proved reserves (Billion BOE)
Reserve Replacement Ratio (3-year average) (%)

2.19

2.53
370

2.43

3.26
321

514

(Thousand BOED)

4%

408

Americas 5%

Middle East/
Africa 41%

255
Eurasia 7%

Asia/Oceania 41%

100

2013/3

2014/3

2015/3

2016/3

Japan 6%

2015/348%

Main increase
factors:Acquisitionof ADCO
Onshore, etc.
6%36%5%

2016/3

INPEX CORPORATION Annual Report 201603

042015 based on an FLNG with a 7.5 million ton
annual LNG production capacity. In April 2016,
we received a notice from the government
calling for a review of the development planfor onshore LNG. Under a policy that seeks theproject’s early start-up, the Company operates
on the basis of selecting the most technologically and economically rational choices andmoving the project forward. In line with thisbasic policy, we are now reviewing how optimal development, including the onshore LNG
development system, can be achieved. We will
discuss this with our partner, Royal Dutch Shell,and Indonesian government authorities.
With respect to the Offshore Mahakam
Block in Indonesia, in December 2015, wereached a basic agreement with Pertamina andTOTAL regarding a basic approach to INPEX
and TOTAL’s participation from 2018 andthereafter. Together with TOTAL we continue tonegotiate with Pertamina.

the 1.7 to 1.8 billion cubic meters of the past
several years, bringing us one step closer to ourmedium- to long-term target. In April 2016 inJapan, full deregulation of electric power retailsales was implemented, but in anticipation offull deregulation, the Company has promoted
a gas supply proposal for natural gas thermal
power generation for its pipeline network.
INPEX has already agreed to several 100,000
kilowatt-class power generation plant projects
and natural gas sales and some of the projects
have begun to supply. In the years ahead, webelieve that gas supply to these natural gas thermal power generation plants will help increase
sales volume. Moreover, since July 2015, INPEX
began proposing wholesale electric powersales jointly with Chubu Electric Power Co.,
Inc. to city gas companies that INPEX provides
natural gas to. In the future, we want to ﬂexibly
respond to the diverse needs of customers bystrengthening the supply chain.

Next, the second pillar of our growth target“Strengthening Gas Supply Chain,” construction of the Toyama Line, one of our priority
initiatives, has continued since 2012 and is
expected to be completed by the middle ofthis year. In January of 2016, the Company
signed a basic natural gas sales and purchaseagreement with Nihonkai Gas Co., Ltd., andafter the Toyama Line is completed, the supplyof natural gas to customers along this pipeline
will ﬁnally begin.
The Company’s medium- to long-term target for sales volume of domestic natural gas is
2.5 billion cubic meters annually by the early2020s. With the completion of the Toyama
Line, sales volume for the ﬁscal year ending
March 31, 2017 is expected (initial forecast) tobe 1.96 billion cubic meters, greatly exceeding

Finally, I will explain the third pillar of our growthtarget “Reinforcement of Renewable Energy
Initiatives.” With respect to renewable energy,
we continue to focus on initiatives for the commercialization of geothermal power and wehave conducted joint research for the commercialization of geothermal power in Akita,
Hokkaido, and Fukushima prefectures. In June2015, we participated in the geothermal power
generation business in the Sarulla Geothermal
Field located in Sumatra, Indonesia, and will
begin operating the ﬁrst power plant in 2016
and plan to begin selling power to Indonesia’s
government-owned electricity company. As anintegrated energy company that contributes
to society, INPEX will focus on next-generation
growth and pursue possibilities for the commercialization of renewable energy.

INPEX CORPORATION Annual Report 2016

1Message
from the President

OutlookIn the ﬁscal year ending March 31, 2017, taking
into account the possibility that recent low oil
prices will continue, we will again clearly classify investments that we should pursue andareas of investment and cost reduction. We will
make a Company-wide effort to strengthen intoa strong corporate structure, while addressing
the harsh market environment.
As for returns to shareholders, the yearend dividend for the ﬁscal year ended March31, 2016 was ¥9.0 per share, and combinedwith the interim dividend, the full-year dividend was ¥18.0 per share. In accordancewith our basic policy of maintaining a balance
between sustainably raising corporate value
by reinvesting in projects and returning proﬁts
to shareholders, for the year ending March 31,
2017, we plan to pay an interim and year-end
dividend of ¥9.0 per share each, for a full-year
dividend of ¥18.0 per share, thus paying thesame dividend paid in the ﬁscal year ended
March 31, 2016. After the start of productionof the Ichthys LNG Project, we would like toensure the proper return of proﬁts to shareholders after taking into account the mediumto long-term business outlook, what other toptier oil and gas exploration and production
companies are returning, and other factors.
To raise sustainable growth and mediumto long-term corporate growth, we are fulﬁlling our social responsibilities in cooperation
with all stakeholders including shareholders.

At the same time, we are taking steps to further enhance corporate value with the aimof making transparent, fair, quick and decisive decisions. In the ﬁscal year ended March
31, 2016, we formulated Corporate Governance Guidelines on November 27, 2015 as a
response to the Corporate Governance Code,which applied to all listed companies on June
1, 2015. These guidelines set forth our basic
views on corporate governance and establish
our relationship with stakeholders including
shareholders, enhance information disclosure,deﬁne our corporate governance system andour policy of constructive dialogue with shareholders.
Energy resources are, needless to say, essential
to society and the importance of their longterm stable development and efﬁcient use
will remain unchanged. The Company’s social
mission is to work hard to become an energy
business and achieve sustainable growth, while
taking an interest in further mounting environmental issues.
We will continue our policy of raising corporate value through the stable and efﬁcient
supply of energy and enhancing competitiveness as an international oil and gas E&Pcompany. As we work to achieve these goals,
we would greatly appreciate your continuedunderstanding and support.
June 2016
President & CEO
Toshiaki Kitamura

INPEX CORPORATION Annual Report 201605