1

Management
MessageMessage from the President

Develop
DeliveryFrom
toFor the year ended March 31, 2014,

ｗe made solid progress on activities undertaken for future growth.

INPEX maintained stable volumes of production, substantially increased its
proved reserves and made steady progress across several major projects.
In the current year, INPEX will gear up its activities to achieve growth targets.

Gaining a Strong Sense of Accomplishment That Significant
Progress Is Being Made Across Several Major Projects
In addition to stable production,
performance trends benefited from continuous weak Japanese yen
For the year ennded March 31, 2014, net sales and net income
increased by 9.7
7% and by 0.4% compared with the previous period,to ¥1,334.6 billlion and ¥183.7 billion, respectively.
y Despite they.
absence of the one-off
f gain on transfer of mining rights recorded
ff
in the previouss period, and the downturn in crude oil prices,
these favorable
e results were largely attributable to stable production volume
es and the positive flow-on eff
f ect of the weak yen.
ff
In the year ended March 31, 2013, INPEX incurred certain losses
as a result of fl
fluctuations in foreign currency exchange rates.
In the period under review, however,r the Company brought tor,account unrealized gains on the redemption of foreign currency
denominated bonds mainly due to depreciation in the value ofthe yen. From the perspective of its profit and loss, INPEX also
saw the gap between assets and liabilities denominated in foreign currencies narrow and the currency exchange risk tended
to neutralize as a result. Taking these factors into consideration,
the weak yen had a favorable impact on both the Company’sbalance sheet and its profit and loss throughout the year ended
March 31, 2014.

Securing the stable production of crude oil and natural gas to support earnings
INPEX is mainlyy engaged in the development and production of
crude oil and natural gas. Accordingly,
y the vast majority of they,Company’s revvenue is derived from crude oil and natural gas
sales. Net prod
duction of crude oil and natural gas, the primarysource of earnings, edged up slightly to 409 thousand boed in
the period undder review. Buoyed by contributions from suchprojects as the Ichthys LNG Project in Australia, INPEX has identified the mediu
um- to long-term target of increasing production
volume to one million boed by the early 2020s. Meanwhile, inthe period leadding up to the start of commercial production at

004

INPEX CORPORATION Annual Report 2014

the Ichthys LNG Project, the Company must look to increase theproduction of crude oil and natural gas at existing fields while
generating production at new fields. At the Company’s gas fieldin the offshore Mahakam Block in Indonesia, a major source of
current earnings, INPEX saw little deterioration in productionlevels with volumes essentially unchanged from the previous
year. Moreover, additional crude oil production began in January 2014 at the large-scale ACG Oil Field in Azerbaijan reinforcing the Company’s earnings capabilities.

1Management
Messagement
We will accelerate the pace ofactivities aimed at achieving
growth targets while maintaining
production of oil and natural gas.

Toshiaki
Kitamura
President & CEO

INPEX CORPORATION Annual Report 2014005

Increase in proved reserves through the extension of the concession agreement in
the Upper Zakum Oil Field helping to secure reserve volume growth
The volume of reserves is the lifeline of any E&P company. Not
only does it govern the level of current earnings, but it also
provides the source of future profits. The Company’s proved
reserves, estimated quantities of crude oil and natural gas thatcan, with reasonable certainty, be collected, as of March 31,
2014, increased by approximately 340 million barrels, or 16%,year on year. This is largely attributable to the extension of theconcession agreement in the large-scale Upper Zakum Oil Field
located in the offshore area of Abu Dhabi in the United ArabEmirates for a further approximately 15 years.
As a result of this increase in proved reserves, the three-year
average reserve replacement ratio, which is an indication of theamount of oil added to proved reserves compared with the total
amount of oil produced over a given period, reached 370% for
the period under review. Oil and gas E&P companies in generalcommonly set an RRR target of 100% or more. At 370%, INPEX’s
current RRR is not only a record high since the Company’s public
listing but also represents a level that far exceeds the oil majors.
In addition, the reserves-to-production ratio, which measuresthe current number of production volume years of reserve volumes held, was 17.1 years for proved reserves and 30.2 years on
the basis of proved and probable reserves as of March 31, 2014.
These levels are above the average of the oil majors.

Favorable revisions to financial terms and conditions at theUpper Zakum Oil Field also helped to push up the Company’ net
income. INPEX in fact has a long history in the area with an operating and technology development track record in Abu Dhabi
that spans four decades. On a personal note, I am convincedthat the Abu Dhabi government’s decision to extend the concession agreement and favorably revise financial terms and conditions is a reflection of the high esteem in which INPEX is held.
Our persistence and hard work coupled with attention to detailis therefore a major and highly significant factor in efforts to fulfill
our social mission of ensuring the stable supply of energy.
Proved Reserves and Reserve Replacement Ratio (3-year average)
See p. 32 for Comparison with Global Oil Companies

Reserve Replacement Ratio(3-year average) (%)

370%

2.19
282%

Proved Reserves(billion boe)

2.53

billion boe

2.43

255%

1.31

25%
2011

2012

2014

2013

Long-Term Net Production Volume Forecasts
Target for the early 2020s
Around 700 thousand boedfrom existing projects fromproduction start-up of
the Ichthys LNG Projectand other factors

409

1 million boedNew
projects

Existing
projects

Existing
projects

thousandboed

2014 (actual)006

INPEX CORPORATION Annual Report 2014

Early 2020s

1Management
MessageTangible progress towardcommencing production at the Ichthys LNG Project
The attention to detail that has attracted wide acclaim in Abu
Dhabi is a key feature of the Ichthys LNG Project in Australia.
The Ichthys LNG Project is the first large-scale LNG project to be
operated by a Japanese company. Accordingly, this project is anextremely important key to the Company’s future growth. Since
the final investment decision (FID) was made in January 2012,
development activities have proceeded smoothly both in termsof cost and schedule.
At that time, our level of expertise as an operator of an
LNG project of this size was limited. Prior to making an FID, wenaturally took steps to complete all due diligence including ananalysis of risks. We also took time to look closely at other LNG
projects of a similar nature. Considerable attention was given
to detailed discussions with contractors, as well as frequent andthorough reviews of technology design documentation leading
up to the tender phase. The success we have therefore had in
advancing the project without any major difficulty is due in largepart to these earnest and comprehensive preparatory measures.
Ground was broken for all major facilities of the Ichthys LNG
Project during the period under review. As of June 2014, half of
all construction work had been completed. Details of progress areprovided in the Special Report (4see p. 34) of this Annual Report.

Looking ahead, steps will be taken to install a module in connection with the gas liquefaction plant. This will be followed by several
important phases including the drilling of production wells and thelaying of pipelines. Taking into consideration progress to date andplans for the immediate future, the Ichthys LNG Project is steadily
taking shape.
When the Project enters a period of full production, the Company’s net production volume is expected to increase by around
1.5 times its current level. From a profit perspective, net income
is projected to jump by a factor that exceeds this upswing in
production volume. With approximately 70% of the LNG produced to be transported to Japan, INPEX will substantially boost
its contributions to the stable supply of energy to Japan. I haveoften referred to this project as the Company’s highest priority.
Success will inevitably determine the level of our growth going
forward, and it represents an important first step in achieving our
Medium- to Long-Term Vision. Looking back, INPEX first ventured to Australia during the mid-1980s. Since then, we haveaccumulated a wealth of knowledge, expertise and geographical advantages. Taking full use of this intellectual capital, we
will work diligently through to production with a sense of bothurgency and anticipation.

Construction of the Naoetsu LNG Terminal completed ahead ofschedule helping to strengthen a gas supply chain
The Company’s natural gas business in Japan is another prominent example of its know-how accumulated over many years andgeographic competitive advantage. During the period immediately following the Second World War through to the presentday, INPEX boasts an unbroken track record for the continuous
and uninterrupted supply of natural gas in Japan. The volume ofannual natural gas sales in Japan has today reached 1.8 billion
m3. This is equivalent to the amount of gas consumed by nearlyfive million households (32 m3 per month per household) andplaces the Company fourth within Japan’s gas sector.
In its natural gas business in Japan, INPEX began construction on the Naoetsu LNG Terminal in 2009. The terminal was completed ahead of schedule in December 2013 and operations havecommenced. Despite confronting severe winter conditions and anumber of other difficulties, this initiative was completed withoutmajor incident. Looking ahead, the Naoetsu LNG Terminal will
receive shipments from the Ichthys LNG Project. This will allow the
Company to maintain and operate a comprehensive gas supply
chain. Undertaking the development and production of natural
gas both in Japan and overseas in its own right, while transporting
supplies to end users through its own LNG terminal and pipeline network, will place INPEX in an unprecedented and globallyunique position. We are also in sight of our medium- to long-termtarget of domestic gas supply volume of 2.5 billion m3 per year. It
is now just under two years before the Ichthys LNG Project comes
online. The fact that we were able to commence operation at the
Naoetsu LNG Terminal ahead of schedule is therefore a major
step forward for the Company.

With about two years before the Ichthys LNG Project
comes online, we will go about our daily activities inan earnest and structured manner with an increased
sense of urgency and anticipation.
INPEX CORPORATION Annual Report 2014

007

Working in Unison, INPEX Is Moving Steadfastly
Toward Achieving Its Medium- to Long-Term Vision
Maintaining a sound financial position whilesteadily undertaking investments geared toward growth
Our overarching vision is to position ourselves to become a topclass international oil and gas E&P company through sustainablegrowth in the oil and gas development business. In May 2012,
INPEX took steps to identify the priority targets to be overcome
and management policies that need to be pursued in order toachieve its Medium- to Long-Term Vision. The Company istherefore pursuing the following three strategic growth targets,
namely to
1 Achieve net production volume of one million boed as a partof efforts to continuously enhance its E&P activities,
2 Strengthen its gas supply chain in a bid to secure domesticgas supply volume of 2.5 billion m3/year, and3 Reinforce its renewable energy initiatives with the aim of
ensuring next-generation growth.
Looking at the specifics of the first strategic growth target–
continuous enhancement of our E&P activities–we are endeavoring to increase our production volume while securing reserve
volumes through the reinvestment of cash flows generated
from production operations at oil and gas fields. To this end,
and under our Medium- to Long-Term Vision, we have plans toinvest a total of ¥3.5 trillion over the five-year period from theyear ended March 31, 2013, to the year ending March 31, 2017,
in order to achieve net production volume of one million boed.
In the year ended March 31, 2014, the Company’s investments

amounted to ¥962.9 billion. Combined with investments totaling¥653.3 billion in the year ended March 31, 2013, our aggregate
investment over this two-year period came to ¥1,616.0 billion.
While more than half of the Company’s investments are directedto the Ichthys LNG Project, construction work and activities
continue to proceed smoothly and essentially in line with plansallowing us to maintain an unchanged investment plan.
Recognizing that the Company is currently operating withina period that requires active investment in the Ichthys and otherlarge-scale projects, INPEX must undertake the procurement offunds in order to meet these requirements. Accordingly, maintaining a sound financial position and increasing the balance of
net assets are of the utmost importance. The balance of our net
assets increased as of March 31, 2014, with profit margins on a
net assets basis falling short (ROE 7.0%) of the high profit levels
secured in the previous period. Meanwhile, we have been successful in maintaining our strong financial position and, in particular, our long-term financial targets of an equity ratio of 50% ormore and a net debt to net total capital employed ratio of 20%
or less. As of March 31, 2014, INPEX’s equity ratio was 69.1%
with net debt to net total capital employed coming in at negative 31.9%. On this basis, we are confident that the Company
maintains a high degree of financial stability.

Operating conditions inJapan and overseas surrounding the energy sector
The oil and natural gas development business is characterized
by the lengthy period required to recoup initial investment. In
addition to maintaining a sound financial position, it is therefore
imperative to consistently undertake an accurate assessmentof global operating conditions surrounding the energy sector.
Looking at recent trends, growing resource nationalism andaggressive efforts by developing nations to secure resources
are intensifying competition making it all the more difficult tosecure development opportunities. At the same time, development project operating conditions are becoming increasingly
harsh due to rising construction and personnel costs. Despite
this environment, INPEX must continue to steadfastly engage insuch large-scale projects as the Ichthys LNG Project and establish a robust international reputation as a global oil development company. Moreover, we must overcome this competitiveenvironment and forge an undeniable position as a promisingmarket player.

008

INPEX CORPORATION Annual Report 2014

Turning to other aspects of the energy environment, shale
gas LNG originating from the United States is expected to playa major role in meeting the growing future demand for energy.
The specific characteristics of shale gas were discussed in lastyear’s annual report. Recognizing the significant hurdles thatneed to be overcome in order to successfully bring a shale gas
LNG project to production, I believe that only competitive projects will win out over the competition. This belief applies equallyto shale gas LNG and existing LNG projects.
On the domestic front, the Cabinet of Japan approved a
new Strategic Energy Plan in April 2014. Under this plan, crude
oil and natural gas are identified as important sources of energy.
At the same time, the overall direction of the plan remains consistent with the Company’s Medium- to Long-Term Vision. Withan increased sense of responsibility, INPEX will continue to carryout its business activities as a core company in Japan involved
closely in the development of crude oil and natural gas.

1Management
Message

Building a global workforce as a part of efforts to ensurea robust operating platform and promoting initiatives aimed at sharing knowledge
In this section of its 2012 Annual Report, INPEX provided a breakdown of its five-year ¥3.5 trillion investment plan and details ofprospects regarding the procurement of funds. Just short of two
years since putting in place our Medium- to Long-Term Vision,
I would now like to talk about our efforts to develop the management platform necessary to properly carry out our businessactivities amid the ongoing growth of our operating scale.
In May 2012, INPEX established the New Ventures Division to oversee the acquisition of overseas projects as one initiative aimed at achieving its Medium- to Long-Term Vision. In
May 2013, the Company set up the Gas Supply & Infrastructure
Division for the integrated management of gas supply facilities
in Japan. Each of these initiatives was aimed at strengthening
our organization. Meanwhile, the increasing global nature of
employee nationalities and workplace locations is a reflection ofprogress being achieved in the Ichthys, Abadi and other largescale projects. At the same time, we are witnessing the growing need for more sophisticated knowledge and skills. Taking
these factors into consideration, INPEX has commenced steps
to put in place a common global human resources management
platform. In addition to identifying measures aimed at securing the necessary professional personnel to ensure the successof large- scale projects, this initiative is designed to promote
human resources development and to provide employees withthe essential skills and technological capabilities required to succeed on the frontline. In building a sound human resources management platform, INPEX is also looking to ensure the cross-border transfer of talented personnel and to establish a mechanismthat will ensure the optimal application of human resources.
The hurdles that need to be overcome increase in line withthe size of the project. Against this backdrop, it is vital that theGroup comes together as one to collectively lift the level of
its expertise. Management and employees alike must bring tobear their individual experience and skills as a multiplier effectthat bolsters the Group’s overall capabilities. With this in mind,
INPEX has put in place a structure to facilitate the sharing of
knowledge and to make the most of the Group’s intellectual
capital. This structure enables the knowledge and know-how
gained through exploration projects, as well as the health, safety
and environment (HSE) experience accumulated through projects conducted worldwide, to be commonly shared throughout
the Group. I make it a point when visiting our many operatingbases in Japan and around the world to check on how effectively
this structure is helping to lift our overall capabilities. Recently,
I have noticed that our technological standards and the interaction among personnel have improved significantly under thisstructure.

INPEX Values serving to unite
the Group under a common global foundation
On a consolidated basis, INPEX maintained a total workforce of
2,874 employees as of March 31, 2014. Of this total, around half
work in locations outside of Japan. In addition, non-Japanesenationals including Australian and Indonesian nationals make up
approximately 40% of all INPEX employees. As the Company’s
structure becomes increasingly diverse, made up of individuals
from a wide range of cultures and countries, the need to put
in place a set of common global-level values also becomes
extremely important. For this reason, in April 2014 we identified five core values that represent our shared understandingof the type of behavior that we strive to demonstrate. These
values are 1 safety, 2 integrity, 3 diversity, 4 ingenuity and 5
collaboration. These INPEX Values are the culmination of morethan a year’s deliberation and debate and integrate the individual value standards of those countries in which we operate
including Japan, Australia and Indonesia. Taking into consideration our stated goal of becoming a top-class international oil
and gas E&P company, it is vital that the Group comes together
under the umbrella of a single set of common and uniform value
standards that extend beyond and across different nationalities
and work locations.

Condensate produced
from the Ichthys fieldat the time of exploration.

INPEX CORPORATION Annual Report 2014009

In conjunction with the establishment of the INPEX Values, it isvital that the Group as a whole engage in detailed operations
from the perspective of its personnel policies and systems.
These parallel activities place us in a better position to ensurethat each and every employee goes about his or her duties witha strong sense of fulfillment and pride. With this in mind, INPEX
places considerable emphasis on creating a workplace environment in which its employees are able to excel and to provide
all possible support irrespective of culture, nationality, genderor age. Our efforts in this area have attracted wide-ranging
acclaim from a number of sources. INPEX has, for example, been
selected as a “Nadeshiko Brand.” This designation is granted
to companies that are considered exceptional in encouraging
women’s success in the workplace. In real terms, the numberof female employees has increased from 252, or around 13% of
the total number of employees, as of March 31, 2010, to 535,
approximately 19%, as of March 31, 2014. Moving forward, andin line with its position as a global company, INPEX will continue
its quest to become a company that is rich in diversity and willcontinue to promote personnel policies and systems that enable
employees to fulfill their potential while engaging in diversity
management.

Relationships with Stakeholders
based on Longstanding Ties of
Mutual Trust
Maintaining safety throughtangible and intangible endeavors
Having spoken about efforts to maintain and expand the volume of production and reserves, and outlined the vital role thatparticipation in large-scale projects plays in ensuring ongoinggrowth, I would now like to focus on our most important priority – “safety.” By its very nature, risks of a major incident arepart and parcel of the oil and natural gas E&P sector. Accordingly, safety should be the No. 1 concern for all operators. Just
as a vehicle requires all four wheels to rotate in the same direction if it is to advance, I strongly believe that a combinationof tangible and intangible measures is essential to achieving
safety. “Safety first” is the most important principle of the five
INPEX Values and forms the core of a strong health, safety andenvironment (HSE) culture. This mind-set and the commitmentof each individual to suspend operations at the slightest hint of

010

INPEX CORPORATION Annual Report 2014

1

gible measures conform to international standards. In the eventthat an incident occurs, we take all appropriate steps, including the establishment of communication channels, as well as
employee education and training, to ensure that we ascertain
and share information while undertaking proper onsite action ina timely and proper manner.

Management
Messagepotential danger is in my opinion the intangible quality necessary to ensure safety. Of equal importance, of course, are tangible measures, most notably the mechanisms that give shape
to the Companyʼs safety endeavors. With this in mind, INPEX
adheres strictly to a policy of HSE management. As a company
that operates on the world stage, it is imperative that our tan-

Securing the support of stakeholders isessential to achieving our management goals
Of equal importance is the support of all stakeholders including shareholders and investors. Taking into consideration thelong investment span that characterizes work in the oil development industry, building longstanding ties of mutual trust withbusiness partners is an inherent essential prerequisite. In similar
fashion, I would like to see INPEX nurture equally strong ties ofmutual trust with its shareholders and investors. Since assuming
the position of president in June 2010, I have made it a point topersonally attend and participate in meetings with institutional
investors in Japan, large-scale briefings with individual investors
and visits to overseas institutional investors. The feedback andopinions of shareholders and investors gained through regularmeetings are an invaluable point of reference when making
management decisions. Thanks to this process, I have a sensethat our relationships with shareholders and investors have
improved considerably.

The Company is also vigorously engaged in investor relations activities aimed at individual investors. In October 2013,
INPEX conducted a 1:400 stock split of its common shares. The
Company also reset its share trading unit at 100 shares. These initiatives have made it easier for individuals to invest in this Company. From a separate angle, the number of oil and gas development companies in Japan is limited. With few domestic industry
peers, it is difficult for investors to gain an in-depth knowledgeof activities and to readily make comparisons. Accordingly, weare placing considerable emphasis on increasing communication
with all investors and engaging in IR activities that focus on thetrends and characteristics of the industry, as well as the Company’s mission.

Raising the Level and Pace of Our Efforts
throughout the Year Ending March 31, 2015
Performance and production volume forecasts
for the year ending March 31, 2015
Performance forecasts for the year ending March 31, 2015,
the current year, are based on the assumption that crude oil
prices will fall slightly below levels recorded in the year ended
March 31, 2014. At the same time, forecasts factor in aggressive exploration investment. As a result, we project a decrease
in revenue and earnings in the year ending March 31, 2015. In
specific terms, consolidated net sales are expected to come inat ¥1,316.0 billion with net income totaling ¥178.0 billion, as ofAugust 2014.
Net production volume, which is directly linked to earnings, is forecast to increase slightly year on year to 411 thousand
boed. As of June 30, 2014, INPEX holds 78 oil and natural gas
projects in 27 countries. Of this total, 34 projects are currently

in production, led by the mainstay Offshore Mahakam Project inIndonesia. Naturally, maintaining and increasing production ateach existing project is an important priority for the Company.
Recognizing the country risks inherent in oil development operations, it is also important to build a geographically well-balanced
asset portfolio. As I have mentioned, INPEX’s production assets
are spread across the world. The amount of production volume
varies by region. Having said this, production will commence at
the Lucius Oil Field in the U.S. Gulf of Mexico during the second half of this year boosting volumes in the Americas, whichcurrently remain low compared to other regions. In addition tocontributions to cash flow, we anticipate an improvement in thebalance of our production assets by region.

INPEX CORPORATION Annual Report 2014011

Raising the level and pace of our efforts tosecure growth throughout the year ending March 31, 2015
At the time our Medium- to Long-Term Vision was put in placein May 2012, I emphasized the importance of the first five-year
period to the year ending March 31, 2017. The year ending
March 31, 2015, is indeed the halfway point of this five-year
period. In the first year, we sprinted out of the starting box toensure a sound start. The second year was a period in which
to solidify the gains that were made. In this the third year, wemust now raise the level and pace of our endeavors as we aim toachieve our growth targets.
Several projects are scheduled to commence during thecurrent year. In last year’s annual report, I talked about the virtuous cycle of growth. By steadily harvesting the seeds that wehave sown, we will apply an even stronger spin to this cycle. We
will progressively complete several large-scale projects moving
forward. A prime example is the Ichthys LNG Project, where wehave passed the halfway point toward completion. We will also
actively engage in exploration investment in a bid to sow theseeds of the future. We plan to invest ¥105.0 billion in exploration during the current year, a record high for the Company, withthe drilling of 21 exploratory wells scheduled mainly in Asia andOceania. Naturally, we will place our first priority on safety andengage in prudent drilling activities. The expectations of successnevertheless remain high.

After the start-up of Ichthys, we will provide returns to shareholders commensuratewith a top-class international oil and gas E&P company
INPEX held its 8th Ordinary General Meeting of Shareholders inJune 25, 2014, with more than 600 shareholders in attendance. A
number of questions were raised concerning the Company’s participation in large-scale projects and conditions throughout the
LNG market. It was clear that shareholders held high expectations
for the Ichthys LNG Project and the Company’s future growth.
During the first half of 2013, INPEX’s share price trended
downward. As if coinciding with the stock split in the lowering of the Company’s share trading unit, the share priceshowed signs of a recovery during the second half. I
believe that the increase in production and proved
reserve volumes, as well as the progress of individual projects including the Ichthys LNG Project,is having a positive effect on our corporate value.
Complementing our business endeavors, we willcontinue to actively engage in the disclosure of
information and IR activities throughout the year
ending March 31, 2015, to ensure that our sharesare properly valued.

INPEX is implementing a balanced approach between
investments and the payment of dividends according to its
shareholder return policy. In the lead-up to production at theIchthys LNG Project, cash flows derived from producing projects are being channeled into reinvestments. In this context,
the focus of our activities is directed toward investment. As aresult, we plan to pay an annual dividend of ¥18 per share for theyear ending March 31, 2015, unchanged from the period underreview. However, as production commences at the Ichthys LNG
Project, we will provide returns to shareholders commensuratewith a top-class international oil and gas E&P company.
As I have mentioned, the current year is the halfway point
to realizing our Medium- to Long-Term Vision with around two
years before the Ichthys LNG Project comes onstream. With thisin mind, we will accelerate the pace of our endeavors. The entire
INPEX Group is dedicated to bringing concrete shape to thegains achieved during the previous period and will raise the levelof its activities to ensure further growth and development.
August 2014
President & CEO

Toshiaki Kitamura

Bringing concrete shape to the gains
already achieved, we will raise the levelof our endeavors going forward.

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INPEX CORPORATION Annual Report 2014