INPEX CORPORATION
Annual Report 2005

Printed in Japan on recycled paper.

2005
INPEX CORPORATION
Annual Report 2005
Year ended March 31, 2005

Stock Information(As of March 31, 2005)[Share Data][Authorized Shares]

Profile2,356,800 common shares
1 special class share[Number of Shareholders/Issued and Outstanding Shares]

We are the leading upstream oil and gas company in Japan, engaged for almost the past four decades in the exploration,
development and production of crude oil and natural gas outside Japan. Since our foundation in 1966, we have steadily
and actively engaged in exploration and development in many promising regions around the world: Indonesia and Australia, as our core areas, as well as the Caspian Sea, the Middle East and South America. Based on production and reserve

Common shares: 21,809 shareholders/1,919,832.75 shares
Special class shares: 1 shareholder/1 share
Note: INPEX CORPORATION issued one special class share to Japan National Oil Corporation (JNOC) on November 17, 2004. With the dissolution of JNOC
on April 1, 2005, this special class share was transferred to the Minister of Economy, Trade and Industry effective from the date of JNOC’s dissolution.
The Company’s Articles of Incorporation state that resolutions regarding certain major corporate decisions approved by the ordinary general meetingof shareholders and the Board of Directors also require a resolution approved by a meeting of the special class shareholder.

amounts, we are the largest upstream oil and gas company in Japan. As of March 31, 2005, our total net proved reserves
based on the SEC standard were approximately 1,545 MMboe, and for the fiscal year ended March 31, 2005 our net
production was 330 Mboe per day.

[Shareholding by Shareholder Type*1]
Individuals and Other: 2.37%
Shareholders: 21,037
Shares: 45,496
Foreign Corporations and Other: 6.85%
Shareholders: 238
Shares: 131,552

JNOC*2 *3: 36.06%
Shareholders: 1
Shares: 692,307.75

Financial Institutions (Including Trust Accounts):
12.03%
Shareholders: 151
Shares: 230,765
Securities Companies: 0.34%
Shareholders: 33
Shares: 6,609

Other Domestic Corporations: 42.35%
Shareholders: 349
Shares: 813,103

Notes: 1. Shareholding ratios are for all issued and outstanding shares
2. Following the dissolution of Japan National Oil Corporation (JNOC) on April 1, 2005, all shares held by JNOC were transferred to the Minister of
Economy, Trade and Industry effective from the date of JNOC’s dissolution.
3. Excludes one special class share.

[Major Shareholders (Common Shares)]
Name

Number of Shares

Holding (%)(Minister of Economy, Trade and Industry)(1)692,307.75

36.06

Japan Petroleum Exploration Co., Ltd.

Japan National Oil Corporation

Contents
Financial Highlights ................................................................ 1
Operating Highlights .............................................................. 2
A Message from Management .............................................. 3
The Ambition to Grow ........................................................... 4
Global Business Activities ...................................................... 10
Corporate Governance .......................................................... 26
Financial Section ................................................................... 29
Reserves and Production ...................................................... 58
Subsidiaries and Affiliates ...................................................... 63
Other Investments ................................................................. 65
Corporate Data ..................................................................... 66
Stock Information .................................................................. 67

FORWARD-LOOKING STATEMENTS:
This annual report includes forward-looking information that reflects theCompany’s plans and expectations. Such forward-looking information isbased on the current assumptions and beliefs of the Company in light of
the information currently available to it, and involves known and unknown
risks, uncertainties, and other factors. Such risks, uncertainties and otherfactors may cause the Company’s actual results, performance, achievements or financial position to be materially different from any future results,
performance, achievements or financial position expressed or implied bysuch forward-looking information. Such risks and uncertainties include,
without limitations, fluctuations in the following:– the price of and demand for crude oil and natural gas;
– exchange rates; and– the costs associated with exploration, development, production andother related expenses.

248,174.56

12.93

Mitsubishi Corporation

189,594

9.88

Mitsui Oil Exploration Co., Ltd.

176,760

9.21

The Master Trust Bank of Japan, Ltd. (Trust Account)

55,419

2.89

Japan Trustee Services Bank, Ltd. (Trust Account)

51,9102.70

Marubeni Corporation

46,446

2.42

Sumitomo Corporation

46,446

2.42

JFE Steel Corporation

44,1902.30

23,455.44

1.22

Dai-ichi Oil Development Co., Ltd.

Note: (1) Following the dissolution of JNOC on April 1, 2005, all shares held by JNOC were transferred to the Minister of Economy, Trade and Industry
effective from the date of JNOC’s dissolution.

The Company undertakes no obligation to publicly update or revise any
information in this annual report (including forward-looking information).

INPEX CORPORATION Annual Report 2005

67

Financial Highlights
INPEX CORPORATION and Subsidiaries
For the years ended March 31, 2002, 2003, 2004 and 2005

Years ended March 31,

Net sales
Operating income
Net income
Cash flows from operating activities
Total assets (at period end)
Long-term debt (at period end)
Net debt (at period end) (1)
Shareholders’ equity (at period end)

Net income per share
Net income per share(2)Cash dividends per share
Cash dividends per share(2)Millions of yen

Thousands of
U.S. dollars(3)

2002

2003

2004

2005

2005

¥ 184,204
97,04927,606
51,827
287,649
31,024(104,900)
230,825¥ 201,533
97,27027,912
51,282
338,747
46,865(109,691)
253,570¥218,831
93,87634,782
44,464525,298
169,30742,297278,114¥478,587
268,663
76,494
131,207779,228
175,604(52,482)
411,296$4,455,703
2,501,285
712,168
1,221,553
7,254,706
1,634,894(488,614)
3,829,215

Yen

U.S. dollars(3)¥46,852.92
15,617.64¥47,178.51
15,726.17¥58,838.76
19,612.92¥40,255.92–$374.79–

10,0003,333

10,0003,333

10,000
3,333

4,000
–

37.24
–

Notes: (1) Net debt = Interest-bearing debt – Cash and cash equivalents – Restricted cash – Other debt securities with determinable market value(2) We made a three-for-one stock split of our common stock effective May 18, 2004. The figures are the amounts after the stock split.
(3) The translations of yen amounts into U.S. dollar amounts have been made at the rate of ¥107.41=US$1.00, the approximate exchange rate on
March 31, 2005

Net sales

Net income(Millions of yen)

(Millions of yen)

Total assets(Millions of yen)

80,000500,000

400,000

1,000,000

800,000

60,000300,000

600,000
40,000200,000

400,000
20,000100,000

200,000

0

0

’02

’03

’04

’05

0

’02

’03

’04

’05

’02

’03

’04

’05

INPEX CORPORATION Annual Report 2005

1

Operating Highlights
INPEX CORPORATION and Subsidiaries
For the years ended March 31, 2002, 2003, 2004 and 2005

The following table sets forth the operating highlights of the INPEX Group (including our subsidiaries and equity method affiliates) for theyears ended March 31, 2002, 2003, 2004 and 2005.

Year ended March 31,

2002

2003

2004

2005

166.4
3,367.4
728

359.5
3,703.5
977

919.0
3,756.5
1,545

52.0
704,630.1
169.5

59.8
814,547.9
195.5

192.6
823,462.3
329.8

4.4
0.7

4.8
0.7

7.0
0.7

7,893
18,03067,161
93,084

167,792
25,296
92,348285,436

52,124
4,220
113,406
169,750

11.8

13.7

12.8

35.3

29.7

615,827
170

873,197
397

12.1

4.9

903.7
3,834.0
1,542.7

1,510.9
3,085.3
2,025.1(1)

Net proved reserves (end of period) :Crude oil, Condensate and LPG (MMbbls)
199.9
Gas (Bcf)
3,555.2
Total (MMboe)
792
Net production(1):Crude oil, Condensate and LPG (Mbbls/day)
61.0
Gas (Mcf/day)
652,109.6
Total (Mboe/day)
169.7
Average expenses per boe produced (US$)(2):
Production(3)3.7
General and Administrative
0.6
Costs incurred (millions of yen)(4):
Acquisition
1,777
Exploration
12,383Development
38,151
Total
52,311
Reserves to production ratio (Years):
Proved reserves as of the end of the fiscal year /Production in the fiscal year
12.8
Proved reserves + Probable reserves,
as of the fiscal year-end / Production in the fiscal year
Standardized measure of discounted future
net cash flows (millions of yen)(1)(5):Reserve replacement ratio (3-year average as %)(6):
Finding and development cost per boe(3-year average in US$)(2)(7):
Net probable reserves (end of period)(1):
Crude oil, Condensate and LPG (MMbbls)
Gas (Bcf)
Total (MMboe)

498,225

Notes: (1) See “Reserves and Production”(2) Converted into U.S. dollars using the average exchange rate for the respective fiscal year. ¥125.64, ¥121.10, ¥112.94 and ¥107.28=US$1.00 were
the respective exchange rates for the years ended March 31, 2002, 2003, 2004 and 2005. Excluding our proportional interest of our equity method
affiliates except JODCO’s equity method affiliate.
(3) Operating expenses plus royalties due others.
(4) Excluding our proportional interest of our equity method affiliates except JODCO’s equity method affiliate.
(5) Converted into U.S. dollars using respective exchange rates of ¥120.20, ¥105.63 and ¥107.41=US$1.00 as of the end of March 31, 2003,
2004 and 2005
(6) Reserve replacement ratio=Proved reserves increase including acquisition/Production(7) The sum of total costs incurred, including our proportional interest of our equity method affiliates, for exploration and development of oil and gas
fields and total costs incurred for acquisitions divided by the sum of proved reserve extensions, acquisitions and revisions.

2

INPEX CORPORATION Annual Report 2005

A Message from Management

In opening, we would like to take this opportunity to thank all our shareholders and otherinvestors for their understanding and support during the past year.
The mission of INPEX CORPORATION is to secure a stable and efficient supply of oil
and natural gas for Japan, a nation poor in energy resources. INPEX was established in1966 as a pioneering Japanese company to promote the development of oil resources in
an international context. Over the course of our history, we have overcome many difficulties, and since 1970, we have discovered a number of large oil and gas fields in Indonesia.
Thanks to the solid financial foundation secured through those discoveries, we have been
diversifying the geographical scope of our activities in the midst of major shifts in the business environment surrounding oil—the two oil crises of the 1970s, the first Gulf War, andthe collapse of the Soviet Union. As a result, we have steadily and actively engaged in
exploration and development in many promising regions around the world: Indonesia andAustralia, as our core areas, as well as the Caspian Sea, the Middle East and South America.
With respect to environmental issues, INPEX has been focusing more of its efforts on
the development of natural gas, primarily because natural gas is increasingly recognized asa cleaner energy resource both at home and abroad. Illustrating this approach is the fact

Naoki Kuroda
President

Kunihiko Matsuo
Chairmanthat we are now the largest supplier of natural gas to the Bontang LNG Plant in Indonesia,
one of the largest facilities of its kind in the world. In that capacity, we are responsible formore than 25% of all the LNG exported to Japan from Indonesia, a major supplier of LNG to Japan. We are also involved in natural gas exports
via pipeline from the West Natuna Sea in Indonesia to Singapore and Malaysia, and we are participating in two LNG projects: Bayu-Undan,
located in the Timor Sea Joint Petroleum Development Area, and Tangguh in Indonesia. In addition to these gas exports, we supply natural gas
to the domestic markets of Indonesia and Australia.
INPEX also focuses its efforts on the projects where we take an operatorship. As an operator with a 100% working interest, INPEX has
succeeded in exploration activities in the Masela Block in Indonesia and WA-285-P in Australia and made promising discoveries of natural gas andcondensate fields, Abadi and Ichthys respectively. In Iran, we are conducting appraisal and development operations as an operator in the Azadegan
Oil Field. We have been building our experience and enhancing our capabilities as an operator through our engagement in these projects.
In partnership with prominent western oil companies, we have discovered crude oil in the Kashagan structure in the Caspian Sea, Kazakhstan.
This structure is considered to have the great potential to be one of the leading super giant oil fields in the world. In Azerbaijan, we acquired
working interests in the ACG (Azeri, Chirag and Gunashli) Oil Fields in the Caspian Sea, which is greatly expanding the scale of production andfurthermore, we are participating in the BTC (Baku-Tbilisi-Ceyhan) Oil Pipeline Project, which will serve as the main link in securing a shipping
route for the crude oil to be produced in this region. Through those involvements, INPEX is actively working to strengthen its position throughout
the Caspian Sea. In February 2004, we entered into a service contract as an operator with a 75% working interest for the integrated appraisaland development operations of the giant Azadegan Oil Field in the Islamic Republic of Iran. Then in May 2004, INPEX acquired all the shares inJapan Oil Development Co., Ltd., which holds working interests and is involved in the development of large oil fields offshore Abu Dhabi, theUnited Arab Emirates. These steps have resulted in a larger and more balanced asset portfolio.
As projected by the Agency for Natural Resources and Energy in its Outlook for Domestic and World Energy Demand/Supply, we believe
oil and gas will continue to serve as the dominant energy sources in the 21st century. It is also forecasted that the need to secure a stablesupply, especially to Asia, will become more acute on account of this area’s remarkable rise in demand, and accordingly, its rapid increase independency on Middle East sources.
On November 17, 2004, INPEX listed on the First Section of the Tokyo Stock Exchange. As a designated national flag company withadvantageous access to desirable projects through diplomacy of energy resources by the Japanese Government, INPEX is working to ensure
the stable and efficient supply of energy to Japan. Our overarching goal is to maximize corporate value by conducting our operations in an
efficient and highly transparent manner based on a long-range business strategy.

Naoki Kuroda President

Kunihiko Matsuo Chairman

INPEX CORPORATION Annual Report 2005

3

The Ambition to Grow
Historical Proved Reserves* by ProductHistorical Production* by Product(MMboe)(Mboe/d)

2,000

400
1,545
626

1,500

977
617

1,000
728
561

330
137

300

200
919

500

169
117

196
136

193

100
360
167

0

FY200352

60

FY2003

FY20040
FY2004

Oil/Condensate/LPG

FY2005

FY2005Natural Gas

Note:* In accordance with SEC regulations. Proved reserve amounts as of the end of March 2003, 2004 and 2005 are based on thereserve report by DeGolyer and MacNaughton. Amounts attributable to the equity method affiliates are included.

[ Our Strengths ]Large proved reserve base with interests in both mature fields and development projects with future potential.
Our extensive and geographically diverse proved reserves support our stable and growing production. Based on independent
evaluation of proved reserves carried out in accordance with SEC regulations by DeGolyer and MacNaughton, independent petroleum
engineering consultants, as of March 31, 2005, our proved reserves were verified at approximately 1,545 MMboe, 34% of whichwere proved undeveloped reserves. In addition, in accordance with Society of Petroleum Engineers (SPE) and World Petroleum
Congress (WPC) standards, DeGolyer and MacNaughton verified that we had net probable reserves of approximately 2,025 MMboe
as of March 31, 2005.
Our reserves consist of interests in a mix of mature legacy fields, such as the Offshore Mahakam Block in Indonesia and the Abu
Dhabi Marine Concession area, and acquisitions, such as our interest in the ACG Oil Fields in the Caspian Sea. In addition, we are
involved in a number of promising oil and gas development projects, including the North Caspian Sea Project in Kazakhstan, theTangguh LNG Project in Indonesia and the Azadegan Oil Field in Iran. Our reserves are, in many cases, jointly developed andproduced with leading global oil and gas companies including the “super major” and “major” oil and gas companies, as well asstate-owned oil and gas companies.
Based on our net proved reserves as of March 31, 2005 and combined production amounts for the period from April 1, 2004 to
March 31, 2005, we had a reserve-to-production ratio of approximately 13 years. Based on our net proved plus probable reserves
as of March 31, 2005, that ratio would increase to 30 years.

High growth potential in medium- and long-term production through development of proved undeveloped
and probable reserves.
In addition to current production projects, we expect to steadily increase our production volume over the medium- and long-term bydeveloping promising projects with net proved undeveloped and probable reserves such as those below:

4

INPEX CORPORATION Annual Report 2005

Upside Potential through Probable Reserves*(MMboe)Reserve Life**(RP Ratio)

4,000
3,570
2,025

2,025

3,000

2,000
532

1,000

1,013

1,545
532

29.7
34.4%

1,013

532
1,013

12.8

65.6%

0
ProvedProvedProvedDeveloped Undeveloped Reserves
Reserves
Reserves

Probable
Reserves

Proved+Probable

Notes:* Probable reserve amount as of the end of March 2005 is based on the reserve report by DeGolyer and
MacNaughton in accordance with SPE/WPC regulation. Amounts attributable to the equity method
affiliates are included.
** Reserve Life = Proved (& Probable) Reserves as of the end of March 2005/Production in FY2005 (RP Ratio:
Reserve Production Ratio).

• Phase 2 of the development of ACG Oil Fields is under way and with the start-up of the BTC Oil Pipeline, this project is expected
to increase production in stages, aiming to reach a production level of 1 million barrels per day in 2009;• Development of the Kashagan Oil Field in the Caspian Sea, which is scheduled to commence production in 2008;• Development of the Belanak Field in the South Natuna Sea Block B, Indonesia, which commenced oil production in December 2004
with subsequent gas and LPG development plans expected in 2005 and 2006;• Development of the Berau Block in Indonesia, which is scheduled to commence production of natural gas to be processed at theTangguh LNG Plant in 2008; and• Stage one of the developments of the Azadegan Oil Field in Iran where commencement of oil production is expected by 2008.

Strategic participation in gas projects that benefit from growing LNG demand in the Asia-Pacific region
We are strategically participating in the natural gas projects to benefit from increasing demand for LNG in the Asia-Pacific region,
including Japan, South Korea, Taiwan, China and the west coast of the United States. LNG is becoming an increasingly importantenergy source for countries in this region because, compared with other energy alternatives, LNG is a cleaner source of primaryenergy. Our natural gas projects located in the Asia-Pacific region, include:• Offshore Mahakam Block that supplies natural gas to the Bontang LNG Plant in East Kalimantan, Indonesia, which is one of thelargest LNG plants in the world in terms of annual LNG production capacity. Our partners and we have been investing to expand
natural gas production in Mahakam and the surrounding fields in order to capitalize on the increasing demand for LNG in the AsiaPacific region;• The joint development of the Bayu-Undan Field in the Timor Sea Joint Petroleum Development Area and the related construction of
LNG plants and undersea pipeline, which is scheduled to commence LNG production in 2006;

INPEX CORPORATION Annual Report 2005

5

LNG Demand Prospect in Asia/Pacific Region(mmtpa)200

Mexico West Coast (exc BC)

4%

6.
AGR

U.S. West Coast (inc BC)

C
2015

~

2004

China

150

India
TaiwanKorea

100

LNG Demand
Japan
50

0
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Wood Mackenzie• The joint development of the gas fields in the Berau-Bintuni Bay region of Papua, Indonesia and our investment in the Tangguh LNG
Project in Indonesia, which is scheduled to start LNG production from 2008.
• The promising gas and condensate discovery in the Masela Block (Abadi) in Indonesia and in the WA-285-P (Ichthys) in Western
Australia, where we act as the operator. We are currently conducting feasibility and marketing studies for the commercial production of
LNG or GTL (gas to liquid) and DME (dimethyl ether) as well as gas supply to the domestic market.

Successful track record of reserve expansion
Our recent acquisitions have focused on strategic, long-term development projects that will offset expected production declines insome of our mature producing assets. These acquisitions include an interest in the Berau Block, the principal block in the Tangguh
LNG Project acquired in October 2001, an interest in the ACG Oil Fields in the offshore south Caspian Sea area of Azerbaijan acquiredin April 2003, an interest in the Abu Dhabi Marine Concession area through the acquisition of all JODCO shares in May 2004, and ourparticipation as an operator in the development of the Azadegan Oil Field in Iran from February 2004. As a result of these acquisitions
and participation, our three-year average reserve replacement ratio for the year ended March 31, 2005 was 397%.

6

INPEX CORPORATION Annual Report 2005

Net Debt to Total Capital Employed*

Equity Ratio**

(%)

(%)

30

100
12.0%

0

(13.3)%

-30

75

74.9%

50

-60

52.9%

52.8%

FY2004

FY200525(75.8)%

0-90
FY2003

FY2004

FY2005

FY2003

Notes:* Net Debt/(Net Debt + Minority Interests + Shareholders’ Equity)
Net Debt = Interest-bearing Debt – Cash and Cash Equivalents – Restricted Cash – Other Debt Securities with Determinable Market Value** Equity Ratio = Shareholders’ Equity/Total Assets

Sound financial base and access to additional capital resources
Our future growth and capital needs will be supported by our sound capital structure and our significant liquidity. We also expect
to continue to have access to financial assistance from Japanese governmental agencies. Our financial strength is supported by
the following:• Our sound capital structure. We believe we have a strong financial position to fund the increasing future expenditures needed tosupport our sustainable growth. As of March 31, 2005, we had a net debt to total capital employed of minus 13.3%. Net debt isinterest-bearing debt less cash and cash equivalents, restricted cash and other debt securities with determinable market value.
• Our significant liquidity. Our policy is to maintain sufficient cash at all times to enable us to make necessary and appropriate investments
for existing and new crude oil and natural gas projects in a timely manner. As of March 31, 2005, we had ¥128.4 billion yen in cash
and cash equivalents and ¥93.8 billion in other debt securities with determinable market value.

Taking advantage of our designation as the national flag company in the upstream oil and gas industry
As the national flag company designated by the Japanese government, we expect to benefit through diplomacy of energy resources by
the Japanese government. Accordingly, we expect to have access to opportunities of new and promising exploration, development
and production projects, that contribute to securing a stable and efficient supply of energy to Japan.

INPEX CORPORATION Annual Report 2005

7

Worldwide Exploration & Production Activities

Tehran Office

Abu Dhabi Branch

Head Office

Perth Office[ Our Strategy ]The basic strategy of our business is to secure the reserves of crude oil and natural gas, and to develop, produce and sell theseresources in generating stable profits and sustaining the growth in corporate value.

Increase production through the development of our large existing reserves base
We are actively participating in major projects such as Kashagan, ACG, Azadegan and Tangguh and our proved undeveloped reserves
give us the opportunity to achieve substantial production growth even without further discoveries of new reserves. Moreover, we haveupside potential through probable reserves and we expect to expand our production volume and proved reserves considerably in themedium to long term by developing our existing reserve portfolio.

Leverage our historical working relationships with major international oil and gas companies to expand ouroperations worldwide
Through our long-term involvement in international projects, we have established positive working relationships with oil producing nations andleading oil and gas companies, including national oil companies in host countries. By capitalizing on these existing relationships, we pursue
participation in new promising projects, helping us to capture long-term growth opportunities for our reserves and production levels.

Achieve well-balanced asset portfolio
We have been diversifying business opportunities in promising regions around the world and acquired high-quality assets, including
ACG, Kashagan and JODCO’s assets in the Abu Dhabi Marine Concession area. While focusing on Indonesia and Australia as our corearea and continuing our active involvement in the Caspian Sea area and the Middle East, we are seeking to achieve further geographic
diversification of our assets through participation in new projects in other areas such as Africa and South America in the near term, andRussia, particularly Far East and East Siberia in the medium and long term. In addition to regional diversification, we consider various
factors to achieve a well-balanced portfolio such as balancing our products among oil and natural gas, balancing our assets among
exploration, development and production stages, diversification of contractual arrangements comprising production sharing contracts,
concession agreements and service contracts, and assuming oil and gas operatorships.

8

INPEX CORPORATION Annual Report 2005

Distribution Chart of Proved Reserves and Net Productionof INPEX Group (FY2005)[Asia/Oceania][Middle East][Caspian Sea/Others]
Jakarta Office

OfficeINPEX Group
Other Investments
Producing
Discovered

50%

57%

Proved reserves

Net production

41%

39%

Proved reserves

Net production

9%4%

Proved reserves

Net production

Enhance activities and capabilities as an operator
While we intend to continue acquiring attractive nonoperator working interests in selected projects, we are also pursuing opportunities
to act as operator in order to have more control over our investments. We have gained operating expertise by working closely over theyear with other leading international oil and gas companies. Furthermore, the acquisition of JODCO brings us valuable technical knowhow and experienced staff in the fields of petroleum development and facility engineering. We are currently the operator of the Masela
Block (Abadi) in Indonesia and the WA-285-P (Ichthys) in Australia as well as the Azadegan Oil Field in Iran. We are confident that wewill be able to operate these projects appropriately and efficiently, and thereby expect that we will be able to strengthen our competitiveness in the acquisition of new promising projects around the world.

Capitalize on the growing demand for LNG in the Asia-Pacific region through the development of natural
gas projects
Increasing demand for LNG in Japan, other countries in Asia and the West Coast of the United States provides us with afavorable environment to increase our natural gas production. In the Asia Pacific region, we have been participating in gas projects
that can enjoy the benefits of the growing demand for LNG including Mahakam, Tangguh and Bayu-Undan, and are also engaged in
Masela (Abadi) and WA-285-P (Ichthys) as an operator. We intend to leverage our experience and relationships in these projects tofurther extend our involvement in the globalization of the future LNG market.

Promote an efficient and transparent business culture that focuses on maximizing corporate value and returnon investment
For the year ended March 31, 2005, our ROE was 22.2% and net ROACE was 20.2%. Both ROE and net ROACE surpassed
20% owing to a substantial increase in net income for FY2005. We continuously intend to improve our earning power andcorporate value through the realization of returns on current development projects, continued focus on cost reductions andcontinuous portfolio review.

INPEX CORPORATION Annual Report 2005

9

Global Business Activities

Indonesia

Indonesia represents one of our Core Areas and the foundation of INPEX’s business activities. INPEX has
conducted successful projects in offshore East Kalimantan, as well as in the Natuna Sea and in the offshore
Java and Sumatra regions. We also have promising assets such as the Masela Block where natural gas
and condensate have been discovered, and the Tangguh LNG Project, which is expected to become anew major LNG base in Indonesia.

Offshore Mahakam Block and Attaka Unit, East Kalimantan (INPEX CORPORATION)

East Kalimantan Block

Bontang LNG and LPG Plants 쐽

Santan Terminal 왖

Attaka Unit

Badak Unit

Attaka Field

Badak Field

Nilam Unit

Saliki Block

Nilam Field

Tengah Block
Tunu Field

Tambora Field
Peciko Field

Sisi-Nubi Unit

Handil Field

Sisi Field

Senipah Terminal 왖

Nubi Field
Bekapai Field

쎲 Balikpapan

Offshore Mahakam Block

Makassar Strait
Gas field
Oil field
Oil and gas field10

In October 1966 we entered into a Production Sharing Contract(PSC) with the Indonesian government and acquired a 100%
working interest. This contract covers operations in the Offshore
Mahakam Block and Attaka Unit.
In April 1970, INPEX established the Attaka Unit with Unocal,
each holding a 50% interest. Soon after, the Attaka Field was
discovered, with production of crude oil and natural gas beginning in 1972. INPEX farmed out 50% of our working interest in the
Offshore Mahakam Block to TOTAL in July 1970. This venture
resulted in the successive discoveries of the Bekapai Field, Handil
Field, Tambora Field, Tunu Field and Peciko Field, all of which arestill producing crude oil and natural gas today.
Once produced, crude oil and condensate are shipped bytanker from the Santan and Senipah terminals mainly to refineries and power companies in Japan. Natural gas is mainly transported to the Bontang LNG and LPG Plants and then shipped
to Japan and other countries.
In January 1991, the PSC was extended 20 years through 2017.
With this extension, the related blocks will continue to play a central
role in INPEX Group operations. INPEX together with the partner isworking to obtain a further extension of the PSC beyond 2017.

Contract Area

Venture Company (est.)

Interest Owned

Offshore Mahakam

INPEX CORPORATIONINPEX 50%/ TOTAL 50%

Attaka Unit

(February 21, 1966)

INPEX 50%/ Unocal 50%

INPEX CORPORATION Annual Report 2005

South Natuna Sea Block B
Offshore Mahakam and Attaka Unit
Berau
(Tangguh Unit)

Offshore Northwest Java
MaselaOffshore Southeast Sumatra

Contributing to the Supply of Natural Gas
In August 1977, construction of the first and second gas liquefaction trains in Bontang, East Kalimantan were completed, and then they
began receiving supplies of natural gas produced in the East Kalimantan region. Rapidly increasing demand for LNG as a clean energy
source has fueled growth at Bontang, which has become a world leading LNG production plant. This plant has eight trains with anannual production of approximately 21 million tons of LNG and approximately 1 million tons of LPG. INPEX is the largest supplier ofnatural gas to Bontang, fulfilling its key role as a supplier of clean energy resources.
INPEX is also heavily involved in financing activities. The company is the largest investor in finance companies created for the
purpose of securing construction capital for the liquefaction plants at Bontang.
The Offshore Mahakam Block has sufficient reserves for natural gas supply to the Bontang LNG Plant for the term of the current PSC.

LNG Production Volume (Historical and Projected) at Bontang
LNG Plant(Units: million tons)

25
20
15
10
5
0
1977 1980

1985

Contracted volume

1990

1995

2000

2005

2009

Volume supplied by INPEX

Bontang LNG Plant, East Kalimantan

INPEX CORPORATION Annual Report 200511

Handil Central Processing Area

South Natuna Sea Block B (INPEX Natuna, Ltd.)In July 1977, we participated in the South Natuna Sea Block B,
where the Udang Oil Field had already been discovered.
Subsequent to our participation in the block, several new fields
were discovered in this block, including the Ikan Pari Field, theBelida Field and the Sembilang Field. All crude oil produced fromthese fields is shipped out from a sea terminal.
In January 1999, a sales agreement was concluded to deliver
gas from this block and the neighboring Natuna Sea Block A and
Kakap Block to Singapore, through the first Indonesian subsea
pipeline connecting foreign markets. Supply began in 2001, andthe following year saw new gas sales to Malaysia from this block.
On the strength of these developments, the PSC for this block
was extended through 2028.
Production of crude oil and condensate in the Belanak Field
began in December 2004. The natural gas production from thefield is scheduled to begin in 2005 and LPG production in 2006.

Belida A Platform, South Natuna Sea Block B

Contract Area

Venture Company (est.)

Interest Owned

South Natuna Sea Block B

INPEX Natuna, Ltd.
(September 1, 1978)

INPEX Natuna 35%/ConocoPhillips 40%/ ChevronTexaco 25%

Duyong Field

Gas Pipeline

South Natuna Sea Block B

KertehMalaysia RouteNatuna Island

Singapore RouteNatuna Sea

Singapore
Kalimantan Island

12

INPEX CORPORATION Annual Report 2005

Offshore Southeast Sumatra BlockIntan Field

Widuri Field
Zelda Field
Java Sea

SumatraNorthwest Corner Field

Offshore Northwest
Java Block

Bima Field
Cinta Field
Ardjuna Field쎲 Jakarta
Java

Offshore Northwest Java Block (INPEX Jawa, Ltd.)In October 1986, INPEX acquired a 7.5% working interest in the
Offshore Northwest Java Block. Since starting production in the
Ardjuna Field in 1971, we have sequentially discovered anddeveloped new oil and gas structures, with production getting
under way in the Arimbi Field in 1976 and the Northwest Corner
Field and Bima Field in 1986.

The crude oil produced from the Ardjuna Field and others isshipped from a sea terminal, and the natural gas is supplied to
PLN (Indonesian national power company) and PGN (Indonesiannational gas company).

Contract Area

Venture Company (est.)

Interest Owned

Offshore Northwest JavaINPEX Jawa, Ltd. (November 10, 1986)

INPEX Jawa 7.25%/BP 46%/CNOOC 36.72%/three others 10.03%

Offshore Southeast Sumatra Block (INPEX Sumatra, Ltd.)In October 1986, INPEX acquired an interest in the Offshore
Southeast Sumatra Block at the same time as the acquisition of
the Offshore Northwest Java Block interest.
Subsequent to INPEX’s involvement, new discoveries weremade at the Intan and Widuri fields in this block, both of which are
currently producing oil. The crude oil produced from the block

is shipped via sea terminal. In December 2004, project partners
concluded the gas sales agreement with PLN to supply natural
gas from 2006 to 2018. The natural gas will be produced mainly
from gas fields in the Zelda and Banuwati areas and supplied to
the Cilegon Power Plant of PLN in West Java by a subsea pipeline.

Contract Area

Venture Company (est.)

Interest Owned

Offshore Southeast Sumatra

INPEX Sumatra, Ltd. (February 15, 1991)

INPEX Sumatra 13.07%/CNOOC 65.54%/five others 21.39%

INPEX CORPORATION Annual Report 2005

13

Abadi-1 DST, Masela Block

Masela Block, Timor Sea (INPEX Masela, Ltd.)In November 1998, we won an open bid for and acquired a 100%
working interest as an operator in the Masela Block in the Timor Sea.
In December 2000, INPEX discovered a large-scale gas
structure, Abadi, by drilling an exploration well in the Masela Block.
This represented the first discovery of natural gas in the Indonesian
Timor Sea. In 2002, two appraisal wells delivered results that far
exceeded expectations. Additional appraisal wells are planned tobe drilled in 2006 to evaluate the reserves and we are presently
engaged in preparing for development and future commercialization, including the development of LNG as well as new technologies
in GTL and DME production.
INPEX, working as a 100% operator in the WA-285-P(Ichthys), offshore Western Australia, discovered a considerable
volume of gas and condensate reserves. We intend to evolve into

a production operator through the commercialization of both ofthese blocks.

Timor Sea Joint Petroleum
Development Area

Indonesia

Masela Block

Abadi-3 쎲쎲 Abadi-2/ 2ST
쎲 Abadi-1

Australia
Timor Sea

Contract Area

Venture Company (est.)

Interest Owned

MaselaINPEX Masela, Ltd. (December 2, 1998)

INPEX Masela 100%

Berau Block, Papua Province Tangguh LNG Project (MI Berau B.V.)
In October 2001, INPEX participated in the development of theBerau Block in Indonesia, a principal block in the Tangguh LNG
Project through joint investment in MI Berau B.V. MI Berau holds
a 16.3% working interest in the Tangguh Unit, an authorized area
between the Berau Block, the adjoining Wiriagar Block, and the
Muturi Block. Long-term sales agreements to supply LNG for
China, Korea and North America have already been concluded
and currently the Tangguh LNG Project partners are conducting
drilling of production wells and construction of liquefaction plants
for the start up of LNG production around 2008.

Muturi Block

Misool Island
Wiriagar Block

Berau Block

Seram Island

Contract Area

Venture Company (est.)

Interest Owned

Berau

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

MI Berau B.V. 22.856%/ BP 48%/Nippon Oil 17.144%/
Kanematsu 12.0%(Tangguh Unit)

14

Papua Province

INPEX CORPORATION Annual Report 2005

MI Berau B.V. 16.3%/ BP 37.2%/CNOOC 12.5%/others 34%

Drilling Rig, Timor Sea

Expansion of Exploration Activities
INPEX is strategically strengthening exploration activities to further bolster our status in Indonesia, an INPEX Core Area. Our aggressive
effort in line with this policy led to successful exploration in the Masela Block. In this region, we are also continuing to make efforts toincrease new assets that lead directly to be commercialized.

Contract Area

Venture Company (est.)

Interest Owned

Saliki, Offshore East
Kalimantan

INPEX Offshore Northeast Mahakam, Ltd. (June 11, 1997)

INPEX Offshore Northeast Mahakam 50%/TOTAL 50%

East Kalimantan,
Offshore East Kalimantan(producing block)

INPEX Offshore North Mahakam, Ltd. (November 6, 2002)

INPEX Offshore North Mahakam 7.5%/
Unocal 92.5%

Santan LPG Storage Facility

INPEX CORPORATION Annual Report 2005

15

JPDA03-01
JPDA03-12Australia andJoint Petroleum Development
Area (JPDA)
WA-285-P

WA-10-L

WA-155-P
WA-12-L

VIC/P51
VIC/P52

VIC/P42

T/33P

Together with Indonesia, this region represents another INPEX Core Area. INPEX Alpha, Ltd. has been very
active in this area, with successes in offshore Western Australia. Together with our involvement in the BayuUndan LNG Project in the Joint Petroleum Development Area (JPDA), we intend to increase our assets in thisarea, pursuing a policy of proactive exploration in the region. We have also succeeded in discovering promising
natural gas and condensate fields, working as an operator in the WA-285-P, offshore Western Australia.

1. Projects in Australia
WA-10-L and others, Offshore Western Australia (INPEX Alpha, Ltd.)In February 1989, INPEX acquired a working interest in the WA210-P in offshore Western Australia. As a result of subsequent
exploration activities, the Griffin fields were discovered, and a
production license (WA-10-L) was granted by the Australian
government for four blocks. Commercial production from theseblocks started in January 1994. The crude oil produced isprocessed and stored at the Griffin Venture, a floating production storage unit, and then shipped for sale. Natural gas is also
processed at the Griffin Venture and is transported through a 70
kilometer underwater pipeline which connects to the mainland’s
trunk pipeline.
In July 1994, INPEX acquired participating interests in the WA155-P (Part II) and the WA-12-L and in July 1999, we acquired aninterest in the WA-155-P (Part I). The Vincent and Ravensworth
discoveries were made in this permit, with development andverification activities currently under way.

Griffin Venture

16

Contract Area

Venture Company (est.)

Interest Owned

WA-10-L

INPEX Alpha, Ltd. (February 17, 1989)

INPEX Alpha 20%/BHPBP 45%/ExxonMobil 35%

WA-155-P (Part I)

INPEX Alpha 28.5%/BHPBP 39.999%/Apache 31.501%

WA-155-P (Part II)

INPEX Alpha 18.67%/Apache 81.33%

WA-12-L

INPEX Alpha 18.67%/ExxonMobil 81.33%

INPEX CORPORATION Annual Report 2005

Drilling Rig, WA-285-P

Expansion of Exploration Activities
INPEX Alpha, Ltd. has a total of eight projects in Australia, including four projects in offshore Western Australia and four projects
in Victoria and Offshore Tasmania. These activities are part of our overall goal to increase our assets in Australia, one of the Core
Areas for INPEX.

RegionContract Area

Interest Owned

Bass Strait, Victoria

VIC/P42

INPEX Alpha 50%/Bass Strait Oil 50%

Offshore Portland, Victoria

VIC/P51

INPEX Alpha 20%/Santos 55%/Mitwell 25%

VIC/P52

INPEX Alpha 33.33%/Santos 33.33%/Unocal 33.33%

Northwest Ocean, Tasmania

T/33P

INPEX Alpha 20%/Santos 80%

WA-285-P, Offshore Western Australia (INPEX Browse, Ltd.)In August 1998, INPEX won an open bid for and acquired a
100% working interest as an operator in the WA-285-P, offshore
Western Australia.
We have pursued exploration activities as a 100% operator,
resulting in the discovery of an extremely promising gas and condensate structure, Ichthys, during 2000. A total of 6 exploratory
wells were drilled from 2000 to 2004 and all the wells resulted in
the discovery of gas and condensate.
A development scheme is in the planning stages, looking toward
not only production of LNG but also new technologies associatedwith GTL and DME, as well as possibilities for domestic supply.

Operation in Offshore Western Australia

Contract Area

Venture Company (est.)

Interest Owned

WA-285-P

INPEX Browse, Ltd. (September 1, 1998)

INPEX Browse 100%

INPEX CORPORATION Annual Report 2005

17

2. Projects in the Timor Sea Joint Petroleum Development Area (JPDA)
West Timor
Timor Sea Joint
Petroleum Development
Area

JPDA03-01
Kuda Tasi
Jahal

Elang-Kakatua Field

JPDA03-12

Gas pipeline to Darwin
Bayu-Undan gascondensate Field
Darwin •Timor Sea

Australia

Image of Offshore Production Facility, Bayu-Undan

JPDA03-12 Timor Sea Joint Petroleum Development Area (INPEX Sahul, Ltd.)In April 1993, INPEX acquired a working interest in the JPDA0312 Contract Area, located in the Timor Sea Joint Petroleum
Development Area which is an area jointly administered by thegovernment of Australia and East Timor.
The exploration operations in this contract area resulted in
the discovery of oil and gas in the Elang, Kakatua, Kakatua North,
Bayu-Undan and Hingkip structures. Production began in the
Elang-Kakatua Field in July 1999, and in the Kakatua and Kakatua
North fields in the following month.
The Undan gas-condensate Field was discovered in the
JPDA03-12 in 1995 immediately after the Bayu Field was discovered in the JPDA03-13 in 1995, which is located directly eastof JPDA03-12. Both the JPDA03-12 and JPDA03-13 partners
determined that the Bayu and Undan fields are a common
gas-condensate accumulation and straddle both contract areas.

18

INPEX CORPORATION Annual Report 2005

In 1999, the unit operating agreement and the unitization agreement were entered into between the JPDA03-12 and JPDA03-13
partners to establish the Bayu-Undan Unit for the purpose of carrying out the development and production of the Bayu-Undan gascondensate Field.
Production of condensate and LPG began in 2004 and LNG
production for delivery to Japan is scheduled from 2006. For
INPEX, the Bayu-Undan Project will stand alongside the LNG
projects of Bontang and Tangguh in Indonesia in terms of scale
and importance.
In connection with this LNG project, INPEX established INPEXDLNGPL Pty Ltd for the purpose of investing in an undersea pipeline
to Darwin, Australia, and in a venture carrying out the construction
and operation of an LNG plant in the suburbs of Darwin.

Contract Area

Venture Company (est.)

JPDA03-12

INPEX Sahul, Ltd. (March 30, 1993)(Bayu-Undan Unit)

Undersea pipeline project
connecting the Bayu-Undan
gas-condensate Field
with Darwin

Interest Owned
INPEX Sahul 19.07%/ConocoPhillips 46.71%/Santos 19.27%/Petroz 14.95%
INPEX Sahul 10.53%/ConocoPhillips 48.47%/Santos 10.64%/Petroz 8.25%/
EniAgip 12.04%/
Tokyo Timor Sea Resources (Tokyo Electric/Tokyo Gas) 10.08%

INPEX DLNGPL Pty Ltd(March 19, 2003)

INPEX DLNGPL Pty 10.53%/ConocoPhillips 48.47%/Santos 10.64%/
Petroz 8.25%/EniAgip 12.04%/Tokyo Electric 6.72%/Tokyo Gas 3.36%

Construction and operationof an LNG plant in Darwin

JPDA03-01 Timor Sea Joint Petroleum Development Area (INPEX Timor Sea, Ltd.)INPEX acquired an interest in the JPDA03-01 in the Timor Sea
JPDA in October 1991. As a result of subsequent exploration
activities in the block, crude oil was discovered in three structures,

Jahal, Klill and Kuda Tasi. Work is now under way to examine thefeasibility of moving to the development phase.

Contract Area

Venture Company (est.)

Interest Owned

JPDA03-01

INPEX Timor Sea, Ltd.
(November 25, 1991)

INPEX Timor Sea 35%/Woodside 40%/Santos 25%

INPEX CORPORATION Annual Report 2005

19

Caspian Sea Area
Offshore North
Caspian Sea
ACG Oil Fields
BTC Pipeline

In 1998, INPEX made its appearance in the Caspian Sea, successfully discovering the Kashagan Oil
Field, a giant oil field in the North Caspian Sea. In 2003, we acquired the interests in the ACG Oil Field, a
giant oil-producing field in the South Caspian Sea. We are also participating in the BTC Pipeline, which
serves as an important transport facility for both the Kashagan Oil Field and the ACG Oil Fields.
INPEX’s activities in the Caspian Sea area will serve to expand our business. These projects will contributeto our corporate strategy of creating a balanced regional asset portfolio across the globe.

Offshore North Caspian Sea Block, Republic of Kazakhstan (INPEX North Caspian Sea, Ltd.)In September 1998, INPEX concluded an Assignment and Assumption agreement with the Kazakhstan government and KazakhOil.
Under the terms of this agreement, a working interest in theattractive Offshore North Caspian Sea Block was acquired.
The block contains regions encapsulating five giant structures.
The September 1999 drilling of the first exploration well, Kashagan
East 1 in the Kashagan Structure, the largest of the five structuresand located in the eastern part of the block, resulted in the
discovery of oil. This event represented the first discovery in the
Kazakhstan controlled area of the Caspian Sea. The Kashagan
Oil Field is considered to have the great potential to be one of theleading super giant oil fields in the world. In addition to the
Kashagan Oil Field, hydrocarbon reserves were confirmed in fourother structures, the Kalamkas, Kashagan Southwest, Aktote andKairan. Currently, development of the Kashagan Oil Field is under
way and crude oil production is scheduled to commence in 2008.

RussiaKazakhstan

쎲 Atyrau쎲 Astrakhan

Caspian Sea

Offshore North
Caspian Sea
BlockOperation in Offshore North Caspian Sea

20

Contract Area

Venture Company (est.)

Interest Owned

Offshore North Caspian Sea

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

INPEX North Caspian Sea 8.33%/EniAgip 18.52%/ExxonMobil 18.52%/
Shell 18.52%/TOTAL18.52%/ConocoPhillips 9.26%/KMG 8.33%

INPEX CORPORATION Annual Report 2005

Azerbaijan

쎲
Baku

AtyrauACG Oil Fields

쎲Sangachal

OdessaGunashli Field

North CaspianSea Block

Oil pipeline
BTC Pipeline

Chirag Field

Constanta

Azeri Field

Northern Route
Novorossiysk

Aktau

Makhachkala
Supsa

Caspian Sea
Black Sea

TbilisiIstanbul

Western
Route

Caspian Sea
Baku

BTC Pipeline
ACG Oil Fields

CeyhanMediterranean Sea

ACG Oil Fields, Caspian Sea, Republic of Azerbaijan (INPEX Southwest Caspian Sea, Ltd.)In December 2002, we entered into an agreement to purchase a
10% working interest in the Azeri-Chirag-Gunashli fields, known as
the ACG Oil Fields, located in the South Caspian Sea area of the
Republic of Azerbaijan. In April 2003, with the consent of SOCAR,
the Azerbaijan national oil company, and the other ACG partners,
the 10% interest in the ACG Oil Fields were transferred to us. We
are a member of The Azerbaijan International Operating Company(AIOC), a joint operating company formed by the ten participatingcompanies to oversee the operations of the ACG Oil Fields. BP has
assumed operatorship of the ACG Oil Fields.

Crude oil production began at the Chirag Field in 1997 and at
the central Azeri Field in 2005 and current production from thesefields is approximately 270,000 barrels per day. This project is
expected to increase production in stages, aiming to reach a
production level of 1 million barrels per day by 2009. The crude oilfrom these fields is currently being transported along a route runningfrom Baku to Supsa on the Black Sea (Western Route). However,once construction of the BTC Pipeline has been completed, oilwill mainly be transported via this route to the Mediterranean Sea.

Contract Area

Venture Company (est.)

Interest Owned

ACG Oil Fields

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

INPEX Southwest Caspian Sea 10%/BP 34.14%/Unocal 10.28%/SOCAR 10%/
Statoil 8.56%/ExxonMobil 8%/Itochu 3.92%/three others 15.1%

BTC Pipeline (INPEX BTC Pipeline, Ltd.)In September 2002, we acquired a 2.5% interest in the 1,760 km
BTC Pipeline project in order to secure promising means oftransporting crude oil produced by our projects in the CaspianSea from Baku (Azerbaijan) to Ceyhan (Turkey) on the Mediterranean Sea via Tbilisi (Georgia). The multinational consortium formedby 11 companies is carrying out the construction and operationof the BTC Pipeline project.

The construction of the pipeline began in 2003 and is expected
to be completed and ready to export oil produced from the ACG
Oil Fields during 2005. Upon completion, the pipeline is expected
to have the capacity to transport 1 million barrels of oil per day.

Project

Venture Company (est.)

Interest Owned

BTC Pipeline

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

INPEX BTC Pipeline 2.5%/BP 30.1%/SOCAR 25%/Unocal 8.9%/
Statoil 8.71%/TPAO 6.53%/EniAgip 5%/TOTAL 5%/Itochu 3.4%/
ConocoPhillips 2.5%/Amerada Hess 2.36%

INPEX CORPORATION Annual Report 2005

21

Azadegan Oil Field

Middle East

Soroosh Field andNowrooz Field

Abu Al Bukhoosh
ADMA

INPEX has working interests in the ADMA Block and the ABK Block offshore Abu Dhabi and produces
crude oil from a total of six fields. In Iran, INPEX is acting as operator in appraisal and development
operations in the Azadegan Oil Field. As with the Caspian Sea and South America, INPEX has designatedthe Middle East as one of our essential Target Areas, worthy of our continued development efforts.

ADMA Block, United Arab Emirates (Japan Oil Development Co., Ltd. (JODCO))In May 2004, INPEX made Japan Oil Development Co., Ltd.
(JODCO) a wholly owned subsidiary by acquiring, through a shareexchange, all the shares in the company held by JNOC.
JODCO was established in 1973 and currently produces
crude oil from five fields in the ADMA Block, located in the Abu
Dhabi Marine Concession Area offshore Abu Dhabi, the United
Arab Emirates. Production in the Upper Zakum Field, the area’s
largest oil field, began in 1982, and in the Umm Al-Dalkh andSatah fields, in which JODCO took part in operations, in 1985
and 1987, respectively. Production has continued steadily since.
Crude oil production also continues at two existing fields: theUmm Shaif and Lower Zakum fields. Production at theselocations began in 1962 and 1967, respectively. Crude oil istransported by subsea pipeline to the islands of either Das or Zirku,
and then shipped.
These five fields are operated by local operating venturecompanies. JODCO continuously sends a number of its personnel,
primarily engineers, to those companies.

Umm Shaif Field

Das Island
Upper Zakum Field
Lower Zakum Field

Satah Field
Zirku Island

Umm Al-Dalkh Field
Abu DhabiContract Area

Venture Company (est.)

Interest Owned

Umm Shaif Field/Lower Zakum Field

Japan Oil Development Co., Ltd.

JODCO 12%/ADNOC 60%/BP 14.67%/ TOTAL 13.33%

Upper Zakum Field/Umm Al-Dalkh Field(February 22, 1973)

JODCO 12%/ADNOC 88%

Satah Field

22

Pipeline

ADMA Block

INPEX CORPORATION Annual Report 2005

JODCO 40%/ADNOC 60%

Abu Al Bukhoosh Block, United Arab Emirates (INPEX ABK, Ltd.)In January 1996, we acquired a 25% working interest in theconcession agreement covering the Abu Al Bukhoosh Block
offshore Abu Dhabi.
This project is the first for INPEX in the Middle East oilproducing block, serving as a beachhead for additional projects
in the future.
Crude oil from the Abu Al Bukhoosh Field is sent by pipeline
to Das Island, where it is blended with crude oil from the Umm
Shaif Field, and then shipped on as Umm Shaif Crude.

Abu Al Bukhoosh Field

Abu Al Bukhoosh Block쎲
Abu Dhabi
United Arab Emirates

Contract Area

Venture Company (est.)

Interest Owned

Abu Al Bukhoosh Block

INPEX ABK, Ltd. (February 29, 1996)

INPEX ABK 25%/TOTAL 75%

Soroosh Field and Nowrooz Field, Islamic Republic of Iran (JJI S&N B.V.)
In January 2003, JAPEX and INPEX participated in thedevelopment project of the Soroosh and Nowrooz fields throughjoint investment in JJI S&N, which holds a 20% working interest in
the project.
Shell conducts development operations as the operator basedon a service contract (a so-called “buyback” contract) which wasentered into in 1999 with National Iranian Oil Company (NIOC).
Drilling development wells and constructing offshore production facilities for full-scale production have been completed andcurrently the preparation for transfer of the operation to NIOC isunder way.

쎲Bandar Khomeyni
Iran

Nowrooz Field

Soroosh Field
Bushehr쎲Contract Area

Venture Company (est.)

Interest Owned

Soroosh Field and Nowrooz Field

JJI S&N B.V. (October 3, 2002)

JJI S&N 20%/Shell 70%/OIEC 10%

INPEX CORPORATION Annual Report 2005

23

Azadegan Oil Field, Islamic Republic of Iran (Azadegan Petroleum Development, Ltd.)In February 2004, INPEX entered into a service contract (a so-called“buyback contract”) with Iran’s National Iranian Oil Company (NIOC)
and its subsidiary, Naftiran Intertrade Co. Ltd. (NICO) for the integrated appraisal and development operations of the Azadegan Oil
Field in the Islamic Republic of Iran.
Under this agreement, INPEX holds a 75% working interest as
an operator in the project to develop the oil field, with NICO holding
the remaining 25%. Under the current plan, two development stages
are contemplated, where the second stage is optional. In the firststage, oil production from the field is scheduled to reach 150,000
bbls per day. In the optional second stage, the production level is
expected to increase by a further 110,000 bbls per day.
Our engagement as an appraisal and production operator is
expected to enhance both our technological capabilities andpresence as an international oil and gas development company.

24쎲 Tehran

Baghdad쎲

Azadegan Oil Field
Iraq쎲 Ahwaz쎲 Kuwait

Iran

Contract Area

Venture Company (est.)

Interest Owned

Azadegan Oil Field

Azadegan Petroleum Development, Ltd. (February 18, 2004)

Azadegan Petroleum Development
75%/NICO 25%

INPEX CORPORATION Annual Report 2005

South America
Frade
Albacora

In Brazil, INPEX has signed a Master Agreement with respect to the expansion of oil production in the
Albacora Field Concession. We are also engaged in oil field development in the Frade Block, offshore
North Campos. We expect further business development in this area.

Frade Block Offshore North Campos, Brazil (Frade Japão Petróleo Limitada (FJPL)/INPEX Offshore North Campos, Ltd.)In July 1999, through Frade Japão Petróleo Limitada (FJPL), a
Brazilian entity, established jointly with Sojitz Corporation, we
acquired a 12.75% working interest (which subsequently
increased to 15%) in the Frade Block. FJPL is a subsidiary of
INPEX Offshore North Campos, Ltd., which is a joint venturewith Sojitz.
The Frade Block consists of a discovered portion with confirmed
crude oil reserves and an undeveloped oil accumulation in thenorthern Campos Basin, Brazil’s largest oil-producing region.
ChevronTexaco is the operator and the development activities areunder way toward the commencement of oil production in 2008.

Campos 쎲

Atlantic Ocean
Frade Block
Albacora Field

쎲 Macae
Marlim Field

Roncador Field

Contract Area

Venture Company (est.)

Interest Owned

Frade BlockFJPL (July 8, 1999) /INPEX Offshore North Campos, Ltd. (October 12, 2000)

FJPL 15%/
Petrobras 42.5%/ChevronTexaco 42.5%

Albacora Field, Offshore North Campos, Brazil (Albacora Japão Petróleo Limitada (AJPL))
In November 2000, INPEX and Sojitz entered into a master agreement for the Albacora Field Phase II Development Project withPetrobras, the Brazilian national oil company.
Under this agreement, Albacora Japão Petróleo Limitada(AJPL), a Brazilian entity established jointly with Sojitz, agreed toprovide to Petrobras the exclusive right to possess and use theassets in connection with the Albacora Field Phase II Development
Project and in return has been granted the oil allotments fornine years.

It is our belief that INPEX’s participation in this second projectin Brazil will give us more opportunities for involvement in new
projects by building a stronger cooperative relationship withPetrobras. Furthermore, through periodic dialogue with Petrobras,
we hope that we will be able to share expertise on deepwater
exploration and development technologies, skills in which
Petrobras has a world-class reputation.

Contract Area

Venture Company (est.)

Albacora Field

Albacora Japão Petróleo Limitada (AJPL) (December 23, 1998)

INPEX CORPORATION Annual Report 200525

Corporate Governance
INPEX contributes to ensuring a stable and efficient supply of energy to Japan, a social
responsibility it takes very seriously. Within this context, INPEX recognizes that enhancing
corporate governance is an important management imperative.

Company Organizations
Management Bodies
Directors and Board of Directors
At INPEX, representative directors and other directors who act as executive officers carry out business operations. The execution ofthese business operations is overseen by the Board of Directors, which also discusses and decides on important business affairs.
Meetings of the Board are convened once a month and at other times as necessary. The Board is made up of 18 directors, 5 of whom
are outside directors. Each of these five outside directors serve concurrently as directors of Japan Petroleum Exploration Co., Ltd.,
Mitsubishi Corporation, Mitsui Oil Exploration Co., Ltd., Marubeni Corporation and Sumitomo Corporation, which are corporateshareholders of INPEX. As business experts with extensive knowledge and experience in INPEX’s business fields, these outside
directors are asked to express opinions on management of essential INPEX businesses that contribute to its development from both
specialist and objective perspectives. The business fields of the previously mentioned corporate shareholders include overseas upstream
businesses. Therefore they might compete against the INPEX Group occasionally. For this reason, INPEX recognizes the need to abideby special corporate governance measures with respect to the possibility of conflicts of interest. To this end, each of INPEX’s directors,
including outside directors, is required to sign a written undertaking to comply with the Japanese Commercial Code relating to suchmatters as non-competition practices, proper treatment for transactions giving rise to a conflict of interest and unauthorized information
disclosure. This reflects the importance of precisely carrying out their duties as directors with a high level of awareness of such matters.

Executive Committee
Made up of managing directors and above, the Executive Committee was established in April 2002 to expedite decision-making. In
principle, the Committee is convened every week, and at other times as necessary, to decide on matters that do not require aresolution of the Board and to conduct discussions that facilitate Board decisions. In addition to the aforementioned members of theCommittee, executive directors and standing statutory auditors, as well as representatives of departments related to resolutions andreports being discussed also attend these meetings.

Statutory Auditors and Board of Statutory Auditors
INPEX employs the statutory auditor system. Statutory auditors attend important meetings such as the Board of Directors and Executive
Committee. In addition, they conduct interviews with departments as necessary and audit the execution of duties of directors with regard
to the company’s overall business affairs and individual projects based on reports from relevant departments and other information.
Furthermore, statutory auditors receive reports related to every audit from the independent auditors and internal audit reports from theInternal Audit Department. The Board of Statutory Auditors, which consists of all statutory auditors, determines auditing policy, formulates
audit plans and receives reports on the status of audits and other matters from statutory auditors. To bolster the audit system, the numberof statutory auditors was increased from three to four in June 2002. The result is that there are now three outside statutory auditors (onestanding and two part-time) and one other statutory auditor (standing). Moreover, since June 2003, the Board of Statutory Auditors hasconvened every month instead of every three months as before. One of the three outside statutory auditors serves concurrently as adirector of Japan Petroleum Exploration Co., Ltd., one of the Company’s shareholders. None of the three outside statutory auditors
has any interest in the Company.

Internal Audit
The Internal Audit Department was established as an organization independent from business departments and reports directly to thepresident, to ensure the appropriateness and efficiency of business activities. As a body cutting across the INPEX Group, the Internal
Audit Department evaluates the internal control systems of the group, including overseas offices. It also examines and evaluates thestatus of management bodies, the efficiency of business operations and other matters, pinpointing problem areas, making necessary
reports and conducting follow-up audits to confirm the status of improvements. The activities of the Internal Audit Department thus
contribute to the proper management of the INPEX Group.

26

INPEX CORPORATION Annual Report 2005

Accounting Audit
Ernst & Young ShinNihon conducts the accounting audit of the Company and the audit is fully pursuant to the Commercial Code andthe Securities and Exchange Law. The names and service years of the Certified Public Accountants who carried out the audit and thenumber of Certified Public Accountants who assisted in the audit for the fiscal year under review are as follows:
The name (service years) of the Certified Public Accountants who carried out the audit:
Hitoshi Terao (18 years) and Hiroaki Kosugi ( – )The number of Certified Public Accountants assisting the audit:
Certified Public Accountants: 11 Junior accountants: 16
Note: Ernst & Young ShinNihon had voluntarily adopted the auditor-rotating system before the startup of restrictions per the Certified Public Accountants Law and theimplementation of voluntarily restrictions by the Japanese Institute of Certified Public Accountants. The rotating of auditors to carry out the audit of the Company isscheduled before the restricted period when each auditor can be engaged in the duty specified by both of the aforementioned restrictions.

Classes of Share and Corporate GovernanceThe company’s Articles of Incorporation stipulate that certain major corporate decisions require a resolution by the holder of the specialclass share, in addition to the approval of the ordinary general meeting of shareholders or Board of Directors. The one special classshare was issued on November 17, 2004, and was held by Japan National Oil Corporation (JNOC). However, the corporation was
dissolved on April 1, 2005, and the special class share was transferred to the Minister of Economy, Trade and Industry.
Major corporate decisions include “the appointment and removal of directors,” “the disposal of material assets,” “material amendments
to the Articles of Incorporation,” “mergers, share exchanges or share transfers,” “capital reductions” and “dissolution.” Among thesedecisions a resolution of a meeting of the special class shareholder is required for any appointment or removal of directors and any
merger, share exchange or share transfer, provided 20% or more of the voting rights attached to shares of common stock are held bya single non-public entity or a single non-public entity and its joint shareholders.
The Minister of Economy, Trade and Industry has established guidelines for the exercise of the special class share’s veto rights(with respect to decisions not approved by a meeting of the special class shareholder). The Minister of Economy, Trade and Industry
may veto any one of the aforementioned major corporate decisions only to the extent that it determines a proposed action or transaction(1) will likely result in INPEX being managed in a manner inconsistent with its goal of securing a stable and efficient energy supply forJapan as a national flag company; (2) will likely adversely affect the goal of efficiently securing a stable and efficient energy supply forJapan as a national flag company; or (3) may affect the exercise of voting rights of the special class share.
The exercise of veto rights by the special class share is thus restricted. With the existence of this class of share, however, INPEX
can minimize the risk of losing management control to foreign-owned concerns and an unsolicited takeover for speculative reasons.
Moreover, because the scope of the veto is limited and guidelines have been set for the exercise of veto rights, the special class shareis an absolute minimum necessary measure that is highly transparent and does not unjustly impinge on INPEX’s ability to operate withflexibility and efficiency.

Risk Management and Corporate Ethics
INPEX recognizes that two factors are vital to increase corporate value amid drastic changes in its operating environment: forestallingand mitigating losses by properly managing risk inherit in its business operations; and maintaining and strengthening trust withcustomers, investors and other parties. A wide range of risk factors could affect corporate value. With respect to risks associatedwith management decisions such as management strategy, related departments analyze and examine issues, receiving advice fromattorneys of law and other outside specialists as necessary. Materially important projects are decided on by the Board of Directors
after first being discussed by the Executive Committee and other managerial bodies. Subsequent changes in matters related tothese projects are then closely monitored.
The INPEX Group has formulated a set of Business Principles that embody the basic policies of its corporate activities. These
principles encompass corporate goals; code of conduct; corporate growth; ethics; health, safety and environment; and contributions
to society. The INPEX Group believes that by strictly adhering to these principles it can maintain and increase the trust and credibilityof the company in the eyes of shareholders, employees, business partners and international society—a vital element of continuous
corporate development. The company’s commitment to this approach is unwavering.

INPEX CORPORATION Annual Report 2005

27

Headquarters Organization Chart
Internal Audit Unit
Corporate Strategy & Administration Division

Secretary Unit

Corporate Strategy & Planning Unit
Public Affairs Unit
Business Development & Legal Unit
General Administration Unit
Human Resources Unit

Accounting, Finance & Logistics Division

Accounting & Finance Unit
Accounting Subunit

GeneralShareholders’Meeting

Logistics & Insurance
IT System Unit
Audit Commitee

Board ofDirectors

Oil & Gas Business Division

Oil Marketing Unit
Gas Business Unit

Executive
Commitiee

President
Technology & HSE Division

Technology Unit
Petroleum Technology Subunit
HSE Unit

Asia Business Division

Planning & Coordination Unit
Masela Unit
East Kalimantan Unit
Asia Unit
Jakarta Office

Oceania & Americas Business Division

Planning & Coordination Unit
Browse Unit
Oceania & Americas Unit

Eurasia, Middle East & Africa Business Division

Planning & Coordination Unit
ACG & BTC Unit
North Caspian Sea & Eurasia Unit
Azadegan Unit
Middle East & Africa Unit

28

INPEX CORPORATION Annual Report 2005

Perth Office(Overseas office for INPEX Alpha,
INPEX Browse)

Tehran Office(Overseas office for Azadegan
Petroleum Development, Ltd.)

Abu Dhabi Branch(Overseas office for Japan Oil
Development Co., Ltd.)

Financial Section

Contents
Management’s Discussion and Analysis of Financial Condition
and Results of Operations ............................................................ 30
Consolidated Balance Sheets ........................................................ 42
Consolidated Statements of Income ............................................... 44
Consolidated Statements of Shareholders’ Equity .......................... 45
Consolidated Statements of Cash Flows ........................................ 46
Notes to Consolidated Financial Statements .................................. 47
Report of Independent Auditors ..................................................... 57

INPEX CORPORATION Annual Report 2005

29

Management’s Discussion and Analysis of Financial Condition
and Results of Operations

Overview
For the year ended March 31, 2005, we had net sales of ¥478.6 billion and net income of ¥76.5 billion. Net sales of crude oil and natural
gas amounted to ¥293.2 billion and ¥185.4 billion, respectively. Based on both production and reserves, we are the largest upstream
oil and gas company in Japan. As of March 31, 2005, our total net proved reserves were approximately 1,545 MMboe, and for the year
ended March 31, 2005, our net annual production was 329.8 Mboe per day.
Net proved reserves were comprised of 919.0 MMbbls of crude oil, condensate and LPG, and 3,756.5 Bcf of natural gas as of March
31, 2005. Approximately 34.4% of such reserves were classified as net proved undeveloped reserves. Net production for the year ended
March 31, 2005 averaged 192.6 Mbbls per day of crude oil, condensate and LPG, and 823.5 MMcf per day of natural gas.
We engage primarily in the exploration, development and production of natural gas and crude oil in Asia and Oceania, the Middle East,
the Caspian Sea and other areas. Currently, most of our natural gas production takes place in Indonesia. We supply the natural gas we
produce in Indonesia to PERTAMINA, an Indonesian oil and gas company, which in turn sells most of the natural gas to power and gas
companies and others in Japan, Korea and Taiwan. We sell substantially all of our crude oil production to electric power companies, oil
refinery companies and others in Japan.
The reserves of some of the projects in our core areas, Asia and Oceania, that are currently producing are expected to decline
over the next ten to fifteen years. In order to address such future reduction of reserves, we have been actively seeking newprospective oil and gas projects to replace and supplement reserves. In our core areas, we have discovered natural gas andcondensate in the course of our acting as operator in the Masela Block (Abadi) in Indonesia and the WA-285-P (Ichthys) in Australia,
which we hope to bring to successful development and production. In the Middle East, we entered into a service contract with NIOC,
Iran’s national oil company, for the development of the Azadegan Oil Field in February 2004. In the Caspian Sea, we also acquired
Offshore North Caspian Sea Block centered on Kashagan Oil Field in Kazakhstan in 1998, and ACG Oil Fields in Azerbaijan in 2002. Ifthese projects start full-scale production, our crude oil production will further increase.
As we invest in new projects, we are seeking to diversify in our business operations in five principal ways, which we expect will materiallyaffect our future results of operations and financial condition:• We are diversifying our areas of production to reduce the relative concentration of our crude oil and natural gas production assets.
• In the past, a substantial portion of our production volume and reserves were natural gas, as opposed to crude oil, in particularnatural gas produced in the Mahakam Block in Indonesia. There are material differences between crude oil and natural gas in termsof susceptibility to market price fluctuations, the time necessary to recover costs, the manner in which they are sold, the average
duration of the sales arrangements and the infrastructure required for transportation. We are focusing on participating in more new
projects for crude oil, such as those in the Caspian Sea, as well as those in the Middle East through the acquisition of the right todevelop the Azadegan Oil Field in Iran and the acquisition of JODCO, for the purpose of achieving a better balance between crude
oil and natural gas.
• Historically, we have participated in most projects as a non-operator. We are now seeking opportunities to act as a project operator.
Already, we are acting as the operator in exploration and appraisal projects in the Masela Block (Abadi) in Indonesia and the WA-285-P(Ichthys) in Australia. Also, we were appointed as the operator to develop the Azadegan Oil Field in Iran.
• We are diversifying the mix of our working interests in the exploration, development and production phases. Crude oil and natural gas
exploration and development require substantial expenditures and investments, with high risks of failure. We have been seeking toacquire working interests in projects that are already in the production phase in addition to those under development, which would
provide additional operating cash flow to fund our exploration and development activities.
• We are diversifying the types of arrangements for exploration, development and production, into which we enter. In the past, a
substantial portion of our activities was conducted under production sharing contracts (PSCs), and to a lesser extent, concessionagreements. But the portion of concession agreements in our projects has increased through the acquisition of JODCO. With respect
to the Azadegan Oil Field, we have a service contract (buy-back arrangement) with the Iranian government.

30

INPEX CORPORATION Annual Report 2005

Factors Affecting Our Results of Operations
A number of factors affect our results of operations. They include:• crude oil prices and natural gas prices;• our crude oil and natural gas production volumes;• level of exploration activities;• fluctuation in the exchange rate between the U.S. dollar and Japanese yen;
• fluctuation in interest rates; and• corporate taxes imposed on us outside Japan.

Crude Oil and Natural Gas Prices
While we negotiate sales prices for crude oil and condensate with customers, those prices generally take into account official prices, which
are determined by governmental authorities in the relevant oil producing regions, which fluctuate generally in line with the fluctuation ininternational crude oil prices. Sales contracts for crude oil are generally one-year contracts but also include spot contracts. In both cases,
sales prices are those at the time of sale and thus fluctuate.
For our natural gas, which is currently mostly produced in Indonesia, the selling price is determined based on the Indonesian Crude
Price, or ICP, pursuant to each sales contract. Sales contracts for natural gas are long-term contracts, typically lasting over 10 years.
Generally, natural gas sales prices move in conjunction with crude oil prices.
As mentioned above, we are exposed to fluctuations in prices of crude oil and natural gas, which are determined by reference tointernational market prices. International oil and gas prices are volatile and are influenced by global as well as regional supply and demandconditions. This volatility has a significant effect on our net sales and net income.
The effect of price changes on our sales and net income is highly complex. For example:• natural gas sales prices move together with crude oil prices; however, movements in sales prices of natural gas are not directly
proportional to those of crude oil prices; and• since sales and net income are determined by the prices as of the dates on which sales are recorded, the actual transaction pricedoes not match the average price of the period.

Our Crude Oil and Natural Gas Production Volumes
Our crude oil and natural gas production volumes depend primarily on the level of the proved and developed reserves in the projects
in which we participate, and market demand for crude oil and natural gas. The level of proved and developed reserves is affected by suchfactors as speed at which successful exploration and development moves to production and speed at which we produce crude oil andnatural gas, the extent to which we acquire additional producing reserves, our own as well as our partners’ expertise in recovery fromreserves, and expiration and extension of the terms of the contracts under which we produce crude oil and natural gas.

Level of Exploration Activities
Due to our policy of expensing exploration costs or, in the case of production sharing contracts, providing a full allowance for recoverable
costs incurred in the exploration phase, an increase in our level of participation in exploration phase projects has a more immediate
negative impact on our results of operations than would be the case were such costs accounted for using the successful efforts or fullcost method of accounting under U.S. GAAP.

Fluctuation in the Exchange Rate Between the U.S. Dollar and Japanese Yen
Because our sales of crude oil and natural gas, most of our expenses and a substantial portion of our debt are denominated in U.S. dollars,
our net income, which is denominated in Japanese yen, is affected by fluctuations in the exchange rate between these currencies.
Appreciation of the Japanese yen against the U.S. dollar negatively impacts our sales and related earnings, while a depreciation of theJapanese yen against the U.S. dollar will have the opposite effect. However, as a substantial portion of our long-term debt is denominatedin U.S. dollars, revaluation of such long-term debt at the end of each period results in a foreign exchange gain if the Japanese yen
appreciates against the U.S. dollar, while a depreciation of the Japanese yen against the U.S. dollar will have an opposite effect. As aresult, those positive and negative effects cancel out each other.

INPEX CORPORATION Annual Report 200531

Fluctuation in interest rates
We fund certain exploration and development projects with long-term loans. A substantial portion of our long-term debt has floatinginterest rates that are determined by reference to the 6-month London Interbank Offered Rate in U.S. dollars. Accordingly, we are exposed
to fluctuation in interest rates in U.S. dollars.

Corporate Taxes Imposed on Us Outside Japan
We conduct all of our operations outside Japan, and most of the corporate taxes we pay are those paid overseas. With respect to ouroverseas taxes, expenses we incur in Japan are not deductible in general. Such domestic expenses include those relating toadministrative expenses at our headquarters, foreign exchange losses and the provision of various types of allowances. When suchdomestic expenses increase, pre-tax income in our consolidated statement of income decreases, but corporate taxes we pay overseas
do not decrease, thereby increasing our effective tax rate.
Indonesia imposes corporate taxes on oil and gas operations on a PSC basis and does not permit the aggregating of expenses fromdifferent PSCs for tax purposes. Thus, even if our exploration activities in Indonesia expand and related expenses increase with respect
to one PSC, we cannot deduct such expenses from taxable income attributable to another PSC in that country.
In the United Arab Emirates, a substantial portion of our crude oil production is subject to a fixed margin regime, limiting our sensitivity
to changes in oil prices. In addition, corporate tax rates and others applicable to another substantial portion of our crude oil production
at the ADMA Block in the Upper Zakum Field are changed from 2004 and result in that portion becoming subject to a fixed margin regime
from 2006.

Our Method of Accounting for Types of Arrangements
Currently, we have mainly entered into two types of arrangements in connection with these activities: PSCs and concession agreements.
For the year ended March 31, 2004, approximately 90% of our net sales were attributable to sales under PSCs, but for the year ended
March 31, 2005, approximately 60% of our net sales were attributable to sales under PSCs and approximately 40% were underconcession agreements in light of our acquisition of JODCO.

Production Sharing Contracts
Cost Recovery and Production Sharing
The allocation of crude oil and natural gas production among the host country’s government (or government entity) and contractors(including ourselves) must first be determined under PSCs.
Different PSCs provide for different formulas for allocating oil and gas production among the host country’s government andcontractors. The following discussion is based on one type of PSC arrangement that applies to projects in Indonesia. Under that typeof PSC, at the end of each fiscal year, total production for that year is allocated to:(1) “first tranche petroleum,” which is a prescribed portion of total production and which is allocated between the host country’s
government and the contractors pursuant to prescribed percentages;(2) “cost recovery portion,” which is the oil and gas equivalent, determined based upon the current unit price of crude oil and natural gas,of (i) non-capital expenditures incurred for production during the current period and (ii) scheduled depreciation of the capital
expenditures for the current period, as calculated under the PSC, and which is allocated only to the contractors; because the oil andgas equivalent is determined based upon the current unit price, as the unit price of crude oil and natural gas increases, the volume
of oil and gas comprising the “cost recovery portion” decreases while that of the “equity portion” (explained below) increases; andif the actual production for the year is not enough to cover the entire quantity of the oil and gas equivalent so calculated, the “costrecovery portion” will be reduced to the extent it is covered by the actual production and the quantity not so covered is carried forward
to the succeeding year in accordance with the relevant PSC; and(3) “equity portion,” which represents the residual amount and which is allocated between the host country’s government and thecontractors pursuant to prescribed percentages.
For purposes of our income statement, we record:• as net sales, our share of total sales relating to crude oil and natural gas production that is allocated to contractors, and• as cost of sales, a portion of “Recoverable account under production sharing” that is recovered through the allocation of our shareof the “cost recovery portion.”

32

INPEX CORPORATION Annual Report 2005

Recoverable Costs under PSCs
Exploration Costs
Our share of all recoverable exploration costs incurred under the terms of the relevant PSC is capitalized under “Recoverable accounts
under production sharing.”
Development Costs
We record our share of all recoverable expenditures under the terms of the relevant PSC under “Recoverable accounts under
production sharing.”
Production Costs
During the production phase, operating costs incurred for production are initially included under “Recoverable accounts under production
sharing” if such costs are recoverable under the relevant PSC.
General and Administrative Expenses
General and administrative expenses are recorded under “Recoverable accounts under production sharing” if such expenses arerecoverable under the relevant PSC.

Non-recoverable Costs under PSCs
Acquisition Costs
For projects under PSCs which are entirely in the exploration phase, we expense costs relating to the acquisition of rights to explore,
develop and produce, or “Exploration and development rights,” as they are incurred. When we acquire rights to projects which are alreadyin the development or production phase, we record the acquisition expenditures or costs under “Exploration and development rights”
in our consolidated balance sheets, which is amortized under the unit-of-production method. Generally, cost recovery provisions under
PSCs do not cover such expenditures or costs.
Interest on Loans
We expense interest on loans we obtain for PSC projects.

Concession Agreements
Acquisition Costs
We account for acquisition costs related to projects under concession agreements, or “Mining rights,” in the same manner as thoserelated to projects under PSCs, as described above.
Exploration Costs
Our share of costs incurred for exploration is expensed as incurred.
Development Costs
Our share of costs related to mining facilities is capitalized under “Tangible fixed assets” in our balance sheets. We depreciate the tangible
fixed assets primarily under the unit-of-production method during our production. Such depreciation expenses constitute cost of sales.
Production Costs
During the production phase, our share of operating costs is included in cost of sales.
General and Administrative Expenses
Our share of general and administrative expenses is expensed as incurred.

INPEX CORPORATION Annual Report 2005

33

Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with Japanese GAAP. The preparation of these financial statements
requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of thefinancial statements and reported amounts of revenues and expenses during the reporting period. Actual results may differ from theseestimates, judgments and assumptions.
An accounting estimate in our consolidated financial statements is a critical accounting estimate if it requires us to make assumptions
about matters that are highly uncertain at the time the accounting estimate is made, and if the presentation of our financial condition or
results of operations are materially affected either by different estimates that we reasonably could have used in the current period, or bychanges in the accounting estimates that are reasonably likely to occur from period to period. We have identified the following criticalaccounting estimates with respect to our financial presentation:

Allowance for Recoverable Accounts under Production Sharing
We capitalize expenditures made during the exploration, development and production phases under PSCs as “Recoverable accounts
under production sharing,” if they are recoverable under the relevant PSC. During the exploration phase prior to obtaining governmental
approval for development, in light of the significant uncertainty involved in the exploration activities for such projects, a reserve in equalamounts to exploration costs is provided for as “Allowance for recoverable accounts under production sharing,” which is a reserve
account for potential losses from unsuccessful exploration. Once governmental approval for development of a field in a contract area
is received, reserves for exploration costs incurred thereafter in the same contract area are not provided. Generally, this allowance
continues to remain unchanged in our balance sheet until the allowance balance exceeds the remaining balance of exploration costpreviously capitalized during the exploration phase under “Recoverable accounts under production sharing,” at which point the excessof the allowance balance is reversed to income in our income statement.

Unit-of-production method
Mining facilities, mining rights and exploration and development rights when such rights are acquired during the production phase areamortized by the unit-of-production method. The unit-of-production method requires a significant estimate as to the proved reserve
quantities. While we believe that our proved reserve estimates are appropriate, changes in the estimates of the proved reserves may
significantly affect future results of operations.

Allowance for Investments in Exploration Companies
We have made investments in companies that are engaged in oil and gas activities, and have provided an allowance for probable losses
on such investments at an estimated amount based on the net assets of the investees. While we believe that the assessment andestimates are reasonable, future changes in the actual production volume, prices and foreign exchange rates may affect future
recoverability of the investments.

Deferred Tax Assets
We record deferred tax assets for temporary differences (including net operating loss carry-forwards) arising mainly from write-down ofinvestments in related parties and revaluation of land. Valuation allowances are provided when we believe that it is more likely than notthat assets will not be realized. Also, we take into account the effect of foreign tax credits in the calculation of valuation allowance.
Realization of deferred tax assets is principally dependent on our generating sufficient taxable income based on available evidence. If
future taxable income is lower than expected due to market conditions, foreign exchange rates or poor operating results, adjustments
may be required.

Retirement Benefits for Employees
The Japanese accounting standard “Accounting for Retirement Benefits” requires the recognition of retirement costs and related liabilities
based on the actuarially determined present value of retirement benefit obligations by the projected unit credit method. However, acompany is permitted to use a simplified method to account for its retirement costs and related liabilities if the number of its employees
is less than 300. We do not have any retirement benefit plan that individually covers more than 300 employees. Because of this, we use
the simplified method and provide an accrual for retirement benefits at the amount which would be required to be paid to all active
employees as if they voluntarily terminated their employment as of the balance sheet date. Accordingly, if our retirement costs and related
liabilities had been recognized based on the actuarially determined present value of the retirement benefit obligations by the projected
unit credit method, different retirement costs and liabilities would have been reported.

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INPEX CORPORATION Annual Report 2005

Historical Results of Operations
The following table shows certain consolidated income statement data derived from our audited consolidated financial statements:(Millions of yen, except percentages)
Year ended March 31,

2004

2005

Net sales
Cost of sales¥218,831
105,759

100.0%
48.3¥478,587
197,094

100.0%
41.2

Gross profit
Exploration expenses
Selling, general and administrative expenses
Depreciation and amortization

113,072
11,552
5,314
2,330

51.7
5.3
2.4
1.1

281,493
2,474
8,718
1,638

58.8
0.5
1.8
0.4

Operating income
Other income:Interest income
Foreign exchange gain
Gain on sales of mining rights
Equity in earnings of affiliates
Other

93,87642.9

268,663

56.1

1,575
10,761
1,497
453
1,217

0.7
4.9
0.7
0.2
0.6

4,060
–
–
–
678

0.9
–
–
–
0.1

15,503

7.1

4,738

1.0

1,817
–

0.8
–

2,984
1,583

0.6
0.3

10,057
746
–
–
1,986

4.6
0.4
–
–
0.9

518
1,607
2,784
2,859
2,434

0.1
0.3
0.6
0.6
0.6

Other expenses:
Interest expense
Equity in losses of affiliates
Provision for allowance for recoverable
accounts under production sharing
Amortization of exploration and development rights
Amortization of goodwill
Foreign exchange loss
Other
Income before income taxes and minority interests
Income taxes
Minority interests
Net income

14,606

6.7

14,7693.1

94,77360,318
(327)

43.3
27.6
(0.2)

258,632
182,607
(469)

54.0
38.1
(0.1)

¥ 34,782

15.9%¥ 76,494

16.0%

INPEX CORPORATION Annual Report 2005

35

Net Sales
Net sales increased ¥259.8 billion, or 118.7%, to ¥478.6 billion for the year ended March 31, 2005 from ¥218.8 billion for the year ended
March 31, 2004.
Net sales of crude oil for the year ended March 31, 2005 amounted to ¥293.2 billion, an increase of ¥224.4 billion, or 326.2%, from
¥68.8 billion for the year ended March 31, 2004. Although the average exchange rate for the Company’s crude oil sales during the year
ended March 31, 2005 was ¥107.40 per U.S. dollar, a ¥5.74 per U.S. dollar, or 5.1% yen appreciation against the U.S. dollar, net salesof crude oil increased since the increase in sales volume was 230.2% and the Company’s average sales price of crude oil for the year
ended March 31, 2005 was US$39.93 per barrel, a $10.90 or 37.5% increase over the previous year.
Sales volume of crude oil for the year ended March 31, 2005 was 67.9 MMbbls, an increase of 47.3 MMbbls, or 230.2% from theprevious year. This increase was due to the acquisition of Japan Oil Development Co., Ltd., where the business results of the ADMA Blockwere included in the consolidated financial results in the year ended March 31, 2005, an increase in sales from the ACG Oil Field andinitiation of production at the Bayu-Undan Gas Condensate Field and Belanak Oil and Gas Field.
Natural gas sales increased ¥35.4 billion, or 23.6%, to ¥185.4 billion for the year ended March 31, 2005 from ¥150.0 billion for theyear ended March 31, 2004. Despite the negative effect of a 5.0% yen appreciation, net sales of natural gas increased since (i) the averagesales price of natural gas also increased US$1.14, or 26.6%, to US$5.42 per thousand cubic feet for the year ended March 31, 2005
from US$4.28 per thousand cubic feet for the year ended March 31, 2004 with the increase of the crude oil price and (ii) the sales volumeof natural gas increased 4.9 billion cubic feet, or 1.7%, to 300.4 billion cubic feet for the year ended March 31, 2005 from 295.5 billion
cubic feet for the year ended March 31, 2004 with the increase of sales from the South Natuna Sea Block B.
Cost of Sales
Cost of sales increased ¥91.3 billion, or 86.4%, to ¥197.1 billion for the year ended March 31, 2005 from ¥105.8 billion for the year ended
March 31, 2004.
This was primarily due to additional costs of oil and gas sales from fields including the ADMA Block, which were accounted for oil andgas sales from the year ended March 31, 2005, increased natural gas-related expenses from investments to expand production capacity
at the Offshore Mahakam Block, and a rise in the recovery of operating expenses associated with higher sales from the ACG Oil Field.
Exploration Expenses
Exploration expenses decreased by ¥9.1 billion, or 78.6%, to ¥2.5 billion for the year ended March 31, 2005 from ¥11.6 billion for theyear ended March 31, 2004. This was primarily due to large-scale drilling of exploratory wells conducted in the WA-285P (Ichthys) Blockin Australia during the year ended March 31, 2004.
Selling, General and Administrative Expenses
Selling, general and administrative expenses reflected the acquisition of Japan Oil Development Co., Ltd., and increased personnel
expenses due to business expansion. As a result, selling, general and administrative expenses increased ¥3.4 billion, or 64.1%, to ¥8.7
billion for the year ended March 31, 2004 from ¥5.3 billion for the year ended March 31, 2004.
Depreciation and Amortization
Depreciation and amortization decreased by ¥0.7 billion, or 29.7%, to ¥1.6 billion for the year ended March 31, 2005 from ¥2.3 billion
for the year ended March 31, 2004.
The decrease in depreciation and amortization is mainly due to the fact that exploration and development rights recorded in connection
with our acquisition of INPEX Jawa were fully amortized for ¥1.1 billion in the year ended March 31, 2004, whereas amortization of
exploration and development rights which belong to INPEX Southwest Caspian Sea, Ltd. for the year ended March 31, 2005 increased
only ¥0.4 billion over the previous year.
Under our accounting for PSCs, capitalized costs included in “Recoverable accounts under production sharing” are reflected in costof goods sold at the time of recovery, and thus we do not have a substantial amount of depreciation or amortization of fixed assets.
Other Income
Other income decreased ¥10.8 billion, or 69.4%, to ¥4.7 billion for the year ended March 31, 2005 from ¥15.5 billion for the year ended
March 31, 2004.
This decrease was primarily due to a reversal in foreign exchange from a gain of ¥10.8 billion in the year ended March 31, 2004 toa loss of ¥2.9 billion in the year ended March 31, 2005.

36

INPEX CORPORATION Annual Report 2005

Other Expenses
Other expenses were stable at ¥14.8 billion. Factors contributing to stability in other expenses included a foreign exchange loss of ¥2.9
billion, amortization of goodwill of ¥2.8 billion, a reversal in equity in earnings of affiliates from ¥0.5 billion in the previous year to lossesof ¥1.6 billion in the year ended March 31, 2005, and an increase in interest expense of ¥1.2 billion. These were offset by a reductionof ¥9.6 billion to ¥0.5 billion for the year ended March 31, 2005 from ¥10.1 billion for the year ended March 31, 2004 in the provision
for allowance for recoverable accounts under production sharing.
Income Taxes
Income taxes for the year ended March 31, 2005 increased ¥122.3 billion, or 202.7%, to ¥182.6 billion from ¥60.3 billion for the year
ended March 31, 2004. This increase was primarily due to an increase in payments of foreign taxes in connection with our acquisitionof Japan Oil Development Co., Ltd.
The effective income tax rate for the year ended March 31, 2005 was 71% compared to 64% for the year ended March 31, 2004.
As explained in “Factors Affecting Our Results of Operations—Corporate Taxes Imposed on Us Outside Japan,” the fact that mostof the corporate taxes we pay are those paid overseas and administrative expenses we incur in Japan are not deductible for such taxes
results in a high effective income tax rate.
Minority Interests
Minority interests for the year ended March 31, 2005 reflected a net loss of ¥0.5 billion, which is fairly consistent with a net loss of ¥0.3
billion for the year ended March 31, 2004.
Net Income
As a result of the foregoing factors, net income increased ¥41.7 billion, or 119.9%, to ¥76.5 billion for the year ended March 31, 2005
from ¥34.8 billion for the year ended March 31, 2004.

Investments and Fundings
Our Investments for Crude Oil and Natural Gas Projects
In order to maintain stable earnings, we need to continuously explore for new reserves of crude oil and natural gas, develop, produce
and distribute.
The following information, which includes the breakdown of our investments among exploration expenditures, development
expenditures and operating expenses, has been prepared based on available data in the reports provided by operators. The definitionof each item is as follows:• Exploration expenditures include exploration drilling and geological and geophysical studies. If the project (contract area) is entirelyin the exploration phase, general and administrative costs, such as personnel costs, office running costs in the country where therelevant project is conducted, are included in this category.
• Development expenditures include development drilling and production facilities.
• Operating expenses include well operations, transportation, maintenance, and supervision of production activities. General andadministrative expenses in the project (contract area) where there is a producing field and/or a field of which governmental approvalfor development has been received.
Our definition of exploration and development expenditures and the basis of preparation of the following table are different from thoserequired under Statement of Financial Accounting Standard No. 69, “Disclosure about Oil and Gas Producing Activities,” or SFAS 69.
Such differences include, but are not limited to, the following:• Our expenditures reflected in the table are on a cash-call basis as to joint ventures for PSCs where we are not an operator, while SFAS
69 requires that expenditures be recorded on an accrual basis.
• We prepared the table based on definitions in the reports from operators. These definitions may not be consistent with that of SFAS 69.
• SFAS 69 requires that general and administrative costs which are not directly related to exploration and development activities be
excluded from exploration and development expenditures. However, general and administrative costs are not necessarily excluded
from those expenditures.

INPEX CORPORATION Annual Report 2005

37

The table below shows our expenditures for the years ended March 31, 2004 and 2005:(Millions of yen, except percentages)
Year ended March 31,

2004

2005

Exploration
Development¥ 25,296
92,348

16.3% ¥ 4,220
59.4
113,406

2.4%
65.7

Subtotal
Operating expenses

117,644
37,685

75.7
24.3

68.1
31.9

¥155,329

100.0% ¥172,635

Total

117,626
55,009100.0%The table below shows our exploration and development expenditures for the years ended March 31, 2004 and 2005 bygeographical region:(Millions of yen, except percentages)
Year ended March 31,

Asia and Oceania
Middle East
Caspian Sea area and others
Total

2004

2005

¥ 85,286
1,106
31,252

72.5% ¥ 66,643
0.9
8,543
26.6
42,440

56.6%
7.3
36.1

¥117,644

100.0% ¥117,626

100.0%The table below shows our operating expenses for the years ended March 31, 2004 and 2005 by geographical region:(Millions of yen, except percentages)
Year ended March 31,

2004

Asia and Oceania
Middle East
Caspian Sea area and others
Total

2005

¥34,391
2,019
1,275

91.3%
5.3
3.4

¥42,975
10,710
1,324

78.1%
19.5
2.4

¥37,685

100.0%¥55,009100.0%

Our expenditures increased by ¥17.3 billion, or 11.1%, to ¥172.6 billion in the year ended March 31, 2005 from ¥155.3 billion in theyear ended March 31, 2004. This was primarily due to an increase in development and operating expenditures at ADMA. In addition,
exploration expenditures decreased and development expenditures increased at the Kashagan Oil Field with development approval by
the government of Kazakhstan. Also, development expenditures increased at the ACG Oil Field. Whereas, exploration expenditures
decreased since exploratory drilling activities did not take place at the WA-285-P (Ichthys) Block in Australia during the year ended March
31, 2005.

Our Expenditures for Acquisitions of Crude Oil and Natural Gas Projects
The table below shows our expenditures for acquisitions of oil and gas properties for the years ended March 31, 2004 and 2005 bygeographical region. Expenditures for acquisitions include the acquisition costs of mining rights, exploration and development rights, andsigning bonuses as well as the acquired recoverable accounts under production sharing due to acquisition.
(Millions of yen, except percentages)
Year ended March 31,

Asia and Oceania
Middle East
Caspian Sea area and others
Total

38

INPEX CORPORATION Annual Report 2005

2004

¥

2005

3,252
44
164,496

2.0%
0.0
98.0

¥ 716
50,517
891

1.4%
96.9
1.7

¥167,792

100.0%¥52,124100.0%

Our expenditures for acquisitions decreased by ¥115.7 billion to ¥52.1 billion for the year ended March 31, 2005 from ¥167.8 billion
for the year ended March 31, 2004. This was primarily due to the acquisition of the ACG Oil Fields in the year ended March 31, 2004.
Whereas, our expenditures increased in the year ended March 31, 2005 in the Middle East, reflecting our acquisition of the ADMA Block.

Analysis of Recoverable Accounts under Production Sharing
With respect to projects under PSCs, our share of costs arising during the exploration, development and production phases arecapitalized under “Recoverable accounts under production sharing.” The following table shows changes in the balance of “Recoverable
accounts under production sharing” during the years ended March 31, 2004 and 2005:(Millions of yen)
Year ended March 31,
Recoverable accounts under production sharing

2004

2005

Balance at beginning of period
Add: Exploration costs
Development costs
Operating expenses
Other
Less: Cost recovery—capital expenditures
Cost recovery—non-capital expenditures
Other¥136,441
13,74384,84834,242
30,692
21,74460,0089,446¥208,768
1,743
101,416
41,909–38,375
72,111
3,731

Balance at end of period¥208,768¥239,619

Allowance for recoverable accounts under production sharing at end of period¥ (44,676)¥ (41,518)“Cost recovery—non-capital expenditures” are generally larger than “operating expenses” because some of the exploration costs anddevelopment costs that are recoverable in the fiscal year when such costs are incurred are included in addition to operating expenses.
Compared with the year ended March 31, 2004, exploration costs for the year ended March 31, 2005 decreased due to (i) the
Kazakhstan government’s approval of the development plan for the Kashagan Oil Field in the North Caspian Sea in February 2004 and(ii) dissolution of PSCs at the Donggala Block in Indonesia.
Development costs increased reflecting the development plan for the Kashagan Oil Field as mentioned above, and the fact that they
now included development costs relating to our project at the ACG Oil Fields despite a decrease of development costs with the initiationof production at the Belanak Oil and Gas Field in the South Natuna Sea Block B.
Operating expenses increased due to increases at the Mahakam contract area, and reflecting the acquisition of equity interests in
the Northwest Java and Southeast Sumatra Block in March 2004.
Cost recovery during the year ended March 31, 2005 occurred primarily at the Mahakam contract area, South Natuna Sea Block B
and the ACG Oil Fields. The increase in cost recovery from the previous year reflected increased cost recovery from the South NatunaSea Block B and increased expenditures for production expansion of natural gas in the Mahakam contract area.
Most of the reductions under “Less: Other” in the year ended March 31, 2004 related to reductions in the balance of recoverable
accounts under production sharing with respect to fields being closed.

INPEX CORPORATION Annual Report 2005

39

Liquidity and Our Funding Sources
Our policy is to maintain sufficient cash at hand at any given time to fund expenditures for existing and new crude oil and natural gas
projects in a timely manner. For this purpose, our cash management policy is to invest excess cash in low-risk and liquid financial
instruments, such as Japanese government bonds.
Our primary sources of funding are cash generated by operation and many other sources. We fund oil and gas projects which arein the exploration phase with funds generated by operations and equity investments from JOGMEC, and projects which are in thedevelopment phase with funds generated by operations and/or long-term loans. We finance our acquisitions of working interests in oil
and gas projects with funds generated by operations as well as equity investments from JOGMEC and/or long-term loans. JBIC andJapanese commercial banks have been providing such long-term loans. Currently, the Japanese commercial banks that provide loans
to us are Mizuho Corporate Bank, Ltd. and The Bank of Tokyo-Mitsubishi, Ltd. The aggregate outstanding principal amount of our longterm debt was ¥177.9 billion as of March 31, 2005. JOGMEC has guaranteed ¥60.8 billion of that aggregate principal amount.
We are required to maintain for JBIC cash collateral generally equivalent to six months’ debt service in a reserve account. The balanceof that reserve account was ¥8.2 billion as of March 31, 2005.

Maturities of Long-term Debt
The following table summarizes the maturities of our outstanding long-term debt as of March 31, 2005:(Millions of yen and U.S. dollars)Long-term debt denominated inYear ending March 31,

U.S. dollars

2006
2007
2008
2009
2010 and thereafter

$

Total

40

INPEX CORPORATION Annual Report 2005

21.1
36.1
204.1
219.5
981.0

$1,461.8

Yen

Total yen equivalent

¥

–
–
–
–
24,695

¥

2,263
3,874
21,444
23,101
127,185¥24,695¥177,867

Historical Cash FlowsThe following table summarizes our historical cash flows for the years ended March 31, 2004 and 2005:(Millions of yen)
Year 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 year

2004

2005

¥ 44,464(218,121)
151,120
54,582¥ 131,207(119,956)
9,791
128,375

Cash Provided by Operating Activities
Cash provided by operating activities increased ¥86.7 billion to ¥131.2 billion for the year ended March 31, 2005 from ¥44.5 billion for theyear ended March 31, 2004. This increase was primarily due to increased net sales volume and the rise in crude oil and natural gas price.

Cash Used in Investing Activities
Cash used in investing activities decreased ¥98.1 billion to ¥120.0 billion for the year ended March 31, 2005 from ¥218.1 billion for theyear ended March 31, 2004. This decrease was primarily due to significant expenditures for our acquisition of the ACG Oil Fields in theyear ended March 31, 2004.

Cash Provided by Financing Activities
Cash provided by financing activities decreased ¥141.3 billion to ¥9.8 billion for the year ended March 31, 2005 from ¥151.1 billion forthe year ended March 31, 2004. This decrease was primarily due to significant long-term borrowing from JBIC and minority investments
for acquisition of rights in the ACG Oil Fields in the year ended March 31, 2004.

INPEX CORPORATION Annual Report 200541

Consolidated Balance Sheets
INPEX CORPORATION and Subsidiaries
As of March 31, 2004 and 2005ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable—tradeMarketable securities (Note 4)Inventories
Deferred tax assets (Note 6)
Other current assets (Note 5)Less allowance for doubtful accounts

Tangible fixed assets:
Buildings and structures
Wells
Machinery, equipment, and vehicles
Land
Other
Less accumulated depreciation and amortization

Intangible assets:
Exploration and development rights
Mining rights
Goodwill
Other

Investments and other assets:
Recoverable accounts under production sharing
Less allowance for recoverable accounts under production sharing
Investment securities (Notes 4 and 5)
Long-term loans receivable
Deferred tax assets (Note 6)
Other investments
Less allowance for doubtful accounts
Less allowance for investments in exploration

Total assets
See accompanying notes to consolidated financial statements.

42

INPEX CORPORATION Annual Report 2005

Millions of yen

Thousands of
U.S. dollars(Note 3)

2004

2005

2005

¥ 54,582
19,265
18,979893
43
13,212(22)¥ 128,375
53,33918,391
1,282
23
37,010–$ 1,195,187
496,592
171,222
11,936
214344,568–

106,952

238,420

2,219,719

9,160
8,508
15,896
4,002
20,722

21,67098,942
153,318
4,002
12,046

201,750
921,162
1,427,409
37,259112,150

58,288(23,146)

289,978(221,717)

2,699,730(2,064,212)

35,142

68,261

635,518

134,367
651
2,868
23

133,106
5,381
–
144

1,239,232
50,098–
1,341

137,909

138,631

1,290,671

208,768(44,676)

239,619(41,518)

2,230,882(386,538)

164,092
79,371
52
4,205
3,615
(330)
(5,710)

198,101
118,355
114
2,208
20,901(661)(5,102)

1,844,344
1,101,899
1,061
20,557
194,591(6,154)(47,500)

245,295

333,916

3,108,798¥525,298¥ 779,228$ 7,254,706

Millions of yen

Thousands of
U.S. dollars(Note 3)

2004

2005

2005

3,273
118
8,372
17,132¥ 20,130
2,263
49,93850,579$ 187,413
21,069464,929
470,896

28,895

122,910

1,144,307

169,307
10,314
784
512
4,493

175,604
25,815
1,504
594
6,222

1,634,894
240,341
14,002
5,530
57,928

185,410

209,739

1,952,695

Total liabilities

214,305

332,649

3,097,002

Minority interests in consolidated subsidiaries

32,87935,283

328,489

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Accounts payable
Current portion of long-term debt (Note 5)
Income taxes payable (Note 6)
Other current liabilities
Long-term liabilities:
Long-term debt (Note 5)
Deferred tax liabilities (Note 6)
Accrued employees’ retirement benefits
Accrued officers’ retirement benefits
Other

¥

Shareholders’ equity (Notes 7 and 15):
Capital stock:
Authorized:
2004 — 600,000 shares2005 — 2,356,801 shares
Issued:2004 — 589,200 shares2005 — 1,919,833.75 shares
Additional paid-in capital
Retained earnings
Unrealized holding gain on securities
Translation adjustments
Less: Treasury stock: 2005 — 1 share

29,46029,460274,276–
249,628
154(1,128)–62,403320,090375(1,031)(1)580,9792,980,076
3,492(9,599)(9)

Total shareholders’ equity

278,114411,296

3,829,215¥525,298¥779,228$7,254,706

Contingent liabilities (Note 12)

Total liabilities and shareholders’ equity

INPEX CORPORATION Annual Report 200543

Consolidated Statements of Income
INPEX CORPORATION and Subsidiaries
For the years ended March 31, 2003, 2004 and 2005

Millions of yen

Thousands of
U.S. dollars(Note 3)

2003

2004

2005

2005

Net sales
Cost of sales¥201,533
95,997¥218,831
105,759¥478,587
197,094$4,455,703
1,834,969

Gross profit
Exploration expenses
Selling, general and administrative expenses (Notes 9 and 10)
Depreciation and amortization

105,536
2,478
5,336
452

113,072
11,5525,314
2,330

281,493
2,474
8,718
1,638

2,620,734
23,033
81,166
15,250Operating income
Other income:Interest income
Foreign exchange gain
Gain on sales of mining rights
Equity in earnings of affiliates
Other

97,27093,876

268,6632,501,285

1,310
–
272
–
702

1,575
10,761
1,497
453
1,217

4,060
–
–
–
678

37,799
–
–
–
6,312

2,284

15,503

4,738

44,111

689
26
1,503

1,817
–
–

2,984
–
1,583

27,781–
14,73816,234
5,945
–
2,538
2,568

10,057
746
–
–
1,986

518
1,607
2,784
2,859
2,434

4,823
14,961
25,91926,61822,661

29,503

14,606

14,769137,501

70,051

94,773

258,632

2,407,895

Income taxes (Note 6):
Current
Deferred

51,143810

55,081
5,237

187,405(4,798)1,744,763(44,670)

Minority interests

51,953(9,814)60,318(327)

182,607(469)

1,700,093(4,366)

Net income (Note 8)¥ 27,912¥ 34,782¥ 76,494$ 712,168

Other expenses:
Interest expense
Loss on devaluation of investment securities
Equity in losses of affiliates
Provision for allowance for recoverable accounts
under production sharing
Amortization of exploration and development rights
Amortization of goodwill
Foreign exchange loss
Other

Income before income taxes and minority interests

See accompanying notes to consolidated financial statements.

44

INPEX CORPORATION Annual Report 2005

Consolidated Statements of Shareholders’ Equity
INPEX CORPORATION and Subsidiaries
For the years ended March 31, 2003, 2004 and 2005

Millions of yen
Capitalstock

Additional
paid-in
capital¥Retainedearnings

Unrealized
holding gain (loss)
on securities

Translation
adjustments

Treasury
stock

Total
shareholders’equityBalance at March 31, 2002

¥ 29,460–¥198,957¥730¥ 1,678¥–¥230,825

Net income
Cash dividends paid
Bonuses to directors andstatutory auditors
Unrealized holding loss on
securities
Translation adjustments

–
–

–
–

27,912(5,892)

–
–

–
–

–
–

27,912(5,892)

–

–

(124)

–

–

–

(124)

–
–

–
–

–
–

(320)
–

–
1,169

–
–

(320)
1,169

Balance at March 31, 2003
Net income
Cash dividends paid
Bonuses to directors andstatutory auditors
Unrealized holding loss
on securities
Translation adjustments

29,460–––––220,853
34,782(5,892)

410
–
–

2,847
–
–

–
–
–

253,570
34,782(5,892)

–

–

(115)

–

–

–

(115)

–
–

–
–

–
–

(256)
–

–
(3,975)––(256)(3,975)

Balance at March 31, 2004
Purchase of treasury stock
Increase due toshare exchange transaction
Net income
Cash dividends paid
Bonuses to directors andstatutory auditors
Unrealized holding gain on
securities
Translation adjustments

29,460–––249,628–

154–(1,128)––(1)

278,114(1)–––

62,403–––76,494(5,892)

–
–
–

–
–
–

–
–
–

62,40376,494(5,892)

–

–

(140)

–

–

–

(140)

–
–

–
–

–
–

221
–

–
97

–
–

221
97

Balance at March 31, 2005

¥ 29,460¥62,403¥320,090¥375¥(1,031)¥(1)¥411,296

Capitalstock

Additional
paid-in
capitalRetainedearnings

Unrealized
holding gain (loss)
on securities

Translation
adjustments

Treasury
stock

Total
shareholders’equity–$2,324,067$1,434$(10,502)$–$2,589,275

–

–

–

–

–

(9)

(9)

–
–
–

580,979–––
712,168(54,855)

–
–
–

–
–
–

–
–
–

580,979
712,168(54,855)––(1,304)–––(1,304)

–
–

–
–

–
–

2,058
–

–
903

–
–

2,058
903

$274,276$580,979$2,980,076$3,492$ (9,599)$(9)$3,829,215

Thousands of U.S. dollars (Note 3)

Balance at March 31, 2004
Purchase of treasury stock
Increase due toshare exchange transaction
Net income
Cash dividends paid
Bonuses to directors andstatutory auditors
Unrealized holding gain
on securities
Translation adjustments
Balance at March 31, 2005

$274,276$

See accompanying notes to consolidated financial statements.

INPEX CORPORATION Annual Report 200545

Consolidated Statements of Cash Flows
INPEX CORPORATION and Subsidiaries
For the years ended March 31, 2003, 2004 and 2005

Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Amortization of goodwill
Provision for allowance for doubtful accounts
Provision for allowance for recoverable accounts under production sharing(Reversal of) provision for accrued retirement benefits
Interest and dividend income
Interest expense
Foreign exchange (gain) loss
Equity in (earnings) losses of affiliates
Gain on sales of mining rights
Accounts receivable
Recovery of recoverable accounts under production sharing(capital expenditures)
Recoverable accounts under production sharing(operating expenditures)
Inventories
Accounts payable
Other receivables
Accrued expenses
Long-term accrued expenses
Advance payments received
Bonuses to directors and statutory auditors
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of marketable securities
Proceeds from sales of marketable securities
Purchases of tangible fixed assets
Proceeds from sales of tangible fixed assets
Purchases of investment securities
Proceeds from sales of investment securities
Investment in recoverable accounts under production sharing
Additional acquisition of shares of consolidated subsidiary
Purchase of mining rights (Note 13)
Proceeds from sales of mining rights (Note 13)
Proceeds from purchase of subsidiaries’ stock resulting inchanges in the scope of consolidation (Note 13)
Other
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from minority interests for additional shares
Cash dividends paid
Cash dividends paid to minority shareholders
Restricted cash deposited
Proceeds from refund of restricted cash
Other
Net cash provided by 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 year
Increase in cash and cash equivalents due to a shareexchange transaction (Note 13)
Cash and cash equivalents at end of year
See accompanying notes to consolidated financial statements.

46

INPEX CORPORATION Annual Report 2005

Millions of yen

Thousands of
U.S. dollars(Note 3)

2003

2004

2005

2005

¥ 70,051
2,464
169
14
16,356163(1,405)
690
1,977
1,503
–
(2,259)¥ 94,773
4,049
169
123
11,284(141)(1,711)
1,816(11,980)(452)(1,497)(2,521)¥ 258,632
12,960
2,868
480
573
204
(4,204)
2,984
(474)
1,583
–
(20,807)$ 2,407,895
120,659
26,702
4,469
5,335
1,899
(39,140)
27,781(4,413)
14,738–(193,716)

14,212

21,74438,375357,276(14,685)
(567)
(459)
(1,555)
1,829
1,410
4,795
(124)
1,689
96,2682,397(718)(46,665)
51,282(13,828)
480
(266)
(389)
541
(741)
(2,160)(114)(831)
98,3482,471(1,322)(55,033)
44,464(7,721)(389)
7,045(15,004)
14,486
1,728
3,315
(142)
311
296,803
4,832(2,596)(167,832)
131,207(71,883)(3,622)65,590(139,689)
134,866
16,08830,863(1,322)
2,896
2,763,272
44,986(24,169)(1,562,536)
1,221,553(2,424)
38,691(8,916)237(59,676)
29,864(39,412)––––
20,707(8,920)22(19,661)
3,685(58,997)(633)(163,511)
3,052–
18,896(11,117)352(63,754)5,043(65,236)––––
175,924(103,501)
3,277(593,558)
46,951(607,355)
–
–
–

–
1,103
(40,533)

3,992
2,143
(218,121)–(4,140)(119,956)–(38,543)(1,116,805)

17,381(148)
9,901(5,892)–––(4)
21,238(3,348)28,63949,775136,028(195)
30,320(5,892)–(9,140)–(1)
151,120(1,295)(23,832)
78,414

15,611(2,282)
1,488(5,892)
(79)
–
940
5
9,791
(3,143)
17,89954,582

145,340(21,246)
13,853(54,855)
(735)
–
8,752
47
91,156(29,262)
166,642
508,165–¥ 78,414–¥ 54,582

55,894¥ 128,375

520,380$ 1,195,187

Notes to Consolidated Financial Statements
INPEX CORPORATION and Subsidiaries

1. BASIS OF PRESENTATIONINPEX CORPORATION (the “Company”) is primarily engaged in the exploration, development and production of natural gas and crude oil.
The Company and its domestic subsidiaries maintain their accounting records and prepare their financial statements in accordancewith accounting principles generally accepted in Japan, and its overseas subsidiaries maintain their books of account in conformity withthose of their countries of domicile. The accompanying consolidated financial statements have been prepared in accordance withaccounting principles generally accepted in Japan, which may differ in certain material respects from accounting principles generally
accepted in the United States of America, and are compiled from the consolidated financial statements prepared by the Company as
required by the Securities and Exchange Law of Japan.
Certain amounts in the consolidated financial statements for the years ended March 31, 2003 and 2004 have been reclassified toconform to the 2005 presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of consolidation and accounting for investments in affiliates
The accompanying consolidated financial statements include the accounts of the Company and companies controlled directly or
indirectly by the Company. Companies over which the Company exercises significant influence in terms of their operating and financial
policies are included in the consolidated financial statements on an equity basis. All significant intercompany balances and transactions
are eliminated in consolidation.
Most of the Company’s subsidiaries are consolidated on the basis of fiscal periods ending December 31, which differ from that of
the Company; however, the significant effect of the difference in fiscal periods has been properly adjusted in consolidation.
The excess of cost over underlying net assets at fair value as of their dates of acquisition is amortized over a period of less than 20
years on a straight-line basis. In the year ended March 31, 2005, the goodwill previously recorded was fully written off because the analysis
of subsequent investment results of goodwill revealed that the goodwill has no future value.
(b) Cash equivalents
All highly liquid investments with a maturity of three months or less when purchased are considered cash equivalents.
(c) Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated into yen at the exchange rates prevailing at the balance
sheet date. All revenues and expenses associated with foreign currencies are translated at the rates of exchange prevailing when suchtransactions were made. The resulting exchange gain or loss is credited or charged to income.
The revenue and expense accounts of the overseas subsidiaries are translated into yen at the rates of exchange in effect at the balance
sheet date. Except for the components of shareholders’ equity, the balance sheet accounts are also translated into yen at the rates of
exchange in effect at the balance sheet date. The components of shareholders’ equity are translated at their historical exchange rates.
Translation adjustments are presented as components of shareholders’ equity 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 fair value
with any changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in shareholders’ equity. Other
securities without a determinable market value are stated at cost. Cost of securities sold is determined by the moving average method.
(e) Inventories
Inventories are mainly stated at cost determined by the average method.
(f) Allowance for doubtful accounts
The allowance for doubtful receivables is provided at an amount determined based on the historical experience of bad debt with respect
to ordinary receivables, plus an estimate of uncollectible amounts determined by reference to specific doubtful receivables from
customers which are experiencing financial difficulties.
(g) Recoverable accounts under production sharing and related allowance
Cash investments made by the Company during exploration, development and production phases under a production sharing contract
are recorded as “Recoverable accounts under production sharing” so long as they are recoverable under the terms of the relevant
contract. When the Company receives the natural gas and crude oil in accordance with the contract, an amount corresponding to thepurchase costs of the products (i.e., a cost recovery portion of the investments) is released from this account.
INPEX CORPORATION Annual Report 2005

47

Because these investments are recoverable only where commercial oil or gas is discovered, an allowance for recoverable accounts
under production sharing is provided for probable losses on investments made during the exploration phase under production sharing
contracts arising from the failure to discover commercial oil and gas. This allowance is stated at an amount based on an assessmentof the recoverability of the investment in each respective project.
(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) Tangible fixed assets
Depreciation of mining facilities is mainly computed by the unit-of-production method.
Depreciation of other tangible fixed assets is determined primarily by the declining-balance method, except for the buildings acquired
on and after April 1, 1998, on which depreciation is computed by the straight-line method, at rates based on the estimated useful livesof the respective assets.
(j) Intangible fixed 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 by the unit-of-production method.
Capitalized computer software costs are being amortized over a period of five years.
Other intangible fixed assets are amortized by the straight-line method.
(k) Accrued retirement benefits
The Company and most of its subsidiaries have defined benefit plans, i.e., lump-sum payment plans and/or multi-employer pension
fund plans, covering substantially all employees, the amounts of which are determined by reference to their basic rates of pay, lengthof service, and the conditions under which termination occurs.
Accrued retirement benefits for employees are provided at the amount which would be required to be paid if all active employees
voluntarily terminated their employment as of the balance sheet date.
In addition, directors and statutory auditors of the Company and certain consolidated subsidiaries are customarily entitled to lumpsum payments under their respective unfunded retirement benefits plans. The provision for retirement benefits for these officers has been
made at an estimated amount.
(l) Leases
Non-cancelable leases are primarily accounted for as operating leases except that lease agreements which stipulate the transfer ofownership of the leased assets to the lessee are accounted for as finance leases.
(m) Research and development expenses and advertising costs
Research and development expenses are charged to income as incurred.
(n) Income taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets
and liabilities and are measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse.
(o) Appropriation of retained earnings
Under the Commercial Code of Japan, the appropriation of retained earnings with respect to a given financial period is made by resolutionof the shareholders at a general meeting to be held subsequent to the close of such financial period. The accounts for that period donot, therefore, reflect such appropriations. See Note 15.
(p) Recent accounting pronouncements
A new Japanese accounting standard “Impairment of Fixed Assets” was issued in August 2002 that is effective for fiscal years beginningon or after April 1, 2005. The new standard requires that tangible and intangible fixed assets be carried at cost less depreciation, andbe reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not berecoverable. Companies would be required to recognize an impairment loss in their income statement if certain indicators of asset
impairment exist and the book value of an asset exceeds the undiscounted sum of future cash flows of the asset. The Company believes
that the new accounting standard on impairment of fixed assets will not have a material impact on their financial condition or results ofoperations under the current guidelines.

48

INPEX CORPORATION Annual Report 2005

3. U.S. DOLLAR AMOUNTS
The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic computation only,at ¥107.41 = U.S. $1.00, the approximate rate of exchange in effect on March 31, 2005. This translation should not be construed
as a representation that yen have been, could have been, or could in the future be, converted into U.S. dollars at the above or any
other rate.

4. SECURITIESa) Information regarding other securities with determinable market value as of March 31, 2004 and 2005 is as follows:
Millions of yen
Carrying
value

Gross
unrealized
gains (losses)

210
35,950¥ 282
36,076¥ 72
126

Subtotal
Securities whose acquisition cost exceeds
their fair value:
Stock
Debt securities

36,16036,358198

77
27,36370
27,330(7)(33)

Subtotal

27,44027,400

(40)

Total

¥63,600¥63,758¥158

March 31, 2004

Securities whose fair value exceeds
their acquisition cost:
Stock
Debt securities

Acquisition
cost¥

Millions of yen
Carrying
value

Gross
unrealized
gains (losses)

287
76,227500¥ 392
76,527
863

¥105
300
363

Subtotal
Securities whose acquisition cost exceeds
their fair value:
Stock
Debt securities

77,01477,782–
17,266

Subtotal
Total

March 31, 2005

Securities whose fair value exceeds
their acquisition cost:
Stock
Debt securities
Other

Thousands of U.S. dollars
Acquisition
cost

Carrying
value

Gross
unrealized
gains (losses)

2,672
709,683
4,655$ 3,649
712,476
8,035

$ 977
2,793
3,380

768

717,010724,160

7,150–
17,247–(19)–
160,748–
160,571–(177)

17,266

17,247(19)

160,748

160,571(177)¥94,280¥95,029¥749$877,758$884,731$6,973Acquisition
cost

¥

$

INPEX CORPORATION Annual Report 200549b) Information regarding sales of securities classified as other securities for the years ended March 31, 2003, 2004 and 2005
is as follows:Year ended March 31,

Proceeds from sales
Gain on sales
Loss on sales

Millions of yen

Thousands of
U.S. dollars

2003

2004

2005

2005

¥68,555259
65¥24,391
63–¥23,939––$222,875––c) The components of other securities without a determinable market value at March 31, 2004 and 2005 are summarized asfollows:
Millions of yen

Thousands of
U.S. dollars

2004

2005

2005

Other securities:
Unlisted securities (*)
Trust beneficiary certificates¥17,402
3,509¥23,493–$218,723–

Total¥20,911¥23,493$218,723

March 31,

( )* An allowance is provided for investments in exploration companies at an estimated amount based on the financial position of the investees.

d) The redemption schedule for securities with maturity dates classified as other securities at March 31, 2005 is as follows:
Millions of yen
1 year or
lessMore than 1
year but lessthan 5 years

More than 5
years but lessthan 10 years

More than
10 years

Debt securities:
Public bonds
Corporate bonds¥18,088303¥33,798
4,063

¥–
–

Total

¥18,391¥37,861¥–

March 31, 2005

Thousands of U.S. dollars
1 yearor lessMore than 1
year but lessthan 5 years

More than 5
years but lessthan 10 years

More than
10 years¥37,521–$168,401
2,821$314,663
37,827$––$349,325–¥37,521$171,222$352,490$–$349,325

5. LONG-TERM DEBT
Long-term debt at March 31, 2004 and 2005 consisted of the following:

March 31,

Loans from banks and others, at interest rates ranging from1.414% to 4.200%, due through 2016:
Less: Current portion50

INPEX CORPORATION Annual Report 2005

Millions of yen

Thousands of
U.S. dollars

2004

2005

2005

¥169,425
118¥177,867
2,263$1,655,963
21,069¥169,307¥175,604$1,634,894

Assets pledged at March 31, 2004 and 2005 were as follows:
Millions of yen

Thousands of
U.S. dollars

2004

2005

2005

Other current assets (restricted cash)
Investment securities¥ 9,140
2,722¥ 8,200
2,636$ 76,343
24,541

Total¥11,862¥10,836$100,884

Millions of yen

Thousands of
U.S. dollars

2004

2005

2005

¥83,090
7,264¥92,597
8,462$862,089
78,782

March 31,

The above assets were pledged against the following liabilities:

March 31,

Long-term debt
Guarantee obligation

The aggregate annual maturities of long-term borrowings subsequent to March 31, 2005 are summarized as follows:
Thousands of
U.S. dollars

Year ending March 31,

Millions of yen

2006
2007
2008
2009
2010
2011 and thereafter

¥

2,263
3,874
21,444
23,101
18,537
108,648$

Total¥177,867$1,655,963

21,06936,067
199,646
215,073
172,582
1,011,526

6. INCOME TAXESThe Company and its domestic consolidated subsidiaries are subject to a number of taxes based on income which, in the aggregate,
resulted in a statutory tax rate of approximately 36.2% in 2003, 2004 and 2005.
The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2003, 2004 and 2005 differ
from the statutory tax rate for the following reasons:Year ended March 31,

2003

2004

2005

Statutory tax rate
Effect of:Permanent differences
Change in valuation allowance
Foreign tax credits
Foreign taxes
Equity in earnings of affiliates
Adjustment of deducted amounts of foreign taxes
Operating losses used during this fiscal year
Other

36.2%

36.2%

36.2%

0.1
6.3
(40.5)
68.9
0.7
–
–
2.5

0.1
0.7
(29.5)
54.0
(0.6)
–
–
2.7

–
3.3
(15.3)
70.4(0.6)(19.4)(4.4)
0.4

Effective tax rates

74.2%

63.6%

70.6%

INPEX CORPORATION Annual Report 2005

51

The significant components of deferred tax assets and liabilities at March 31, 2004 and 2005 were as follows:
Millions of yen

Thousands of
U.S. dollars

2004

2005

2005

Deferred tax assets:
Investments in related parties
Loss on revaluation of land
Recoverable accounts under production sharing (Foreign taxes)
Allowance for investments in exploration
Foreign taxes payable
Allowance for recoverable accounts under production sharing
Net operating loss
Accumulated amortization of tangible fixed assets
Accumulated amortization of development costs
Accrued retirement benefits
Translation differences of asset and liabilities denominated in foreign currencies
Other¥ 29,259
4,547
6,778
2,558
–
670
4,757
–
545
402
–
4,603

¥ 28,077
4,543
7,123
3,277
13,038–16,248
1,012
–
726
6,732
5,180

$ 261,400
42,296
66,31630,509121,385–
151,271
9,422
–
6,759
62,67648,227

Total gross deferred tax assets
Valuation allowance

54,119(45,177)

85,956(76,712)800,261(714,198)

8,942

9,244

86,063

9,881
–
5,427

26,014
5,049
3,792

242,193
47,00735,304

March 31,

Total deferred tax assets
Deferred tax liabilities:
Foreign taxes
Translation differences of asset and liabilities denominated in foreign currencies
Other
Total deferred tax liabilities

15,30834,855324,504

Net deferred tax liabilities¥ 6,366¥ 25,611$ 238,441

7. SHAREHOLDERS’ EQUITYAs of March 31, 2005, the total number of the Company’s shares issued consisted of 1,919,832.75 shares of common stock and one
special class share. The special class share has no voting rights at the common shareholders’ meeting, but the ownership of the specialclass share give its holder a veto right over the following major corporate actions and transactions by imposing the requirement to obtaina class vote:– Appointment and removal of directors– Disposition of all or part of the material assets– Amendments to the Articles 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– Mergers, share exchange or share transfer– Capital reduction– Dissolution
The special class share will be redeemed upon request by the relevant special class shareholder.
In accordance with the Commercial Code of Japan (the “Code”), the Company has provided a legal reserve, which is included inretained earnings. The Code provides that an amount equal to at least 10% of the amount to be disbursed as distributions of earnings
be appropriated to the legal reserve until the total of such reserve and the additional paid-in capital account equals 25% of the common
stock account. The legal reserve amounted to ¥7,365 million and ¥7,365 million ($68,569 thousand), respectively, at March 31, 2004
and 2005.
The Code provides that neither additional paid-in capital nor the legal reserve is available for dividends, but both may be used toreduce or eliminate a deficit by resolution of the shareholders or may be transferred to common stock by resolution of the Board of
Directors. The Code also provides that if the total amount of additional paid-in capital and the legal reserve exceeds 25% of the amountof common stock, the excess may be distributed to the shareholders either as a return of capital or as dividends, subject to the approvalof the shareholders.

52

INPEX CORPORATION Annual Report 2005

8. AMOUNTS PER SHARE

Year ended March 31,

Net income
Cash dividends
Net assets

Yen

U.S. dollars

2003

2004

2005

2005

¥ 47,178.51
10,000.00
430,169.19¥ 58,838.76
10,000.00
471,826.00¥ 40,255.92
4,000.00
214,163.98$ 374.79
37.24
1,993.89

Net income per share is computed based on the net income available for distribution to shareholders of common stock and the weightedaverage number of shares of common stock outstanding during the year.
Cash dividends per share represent the cash dividends declared as applicable to the respective years.
Amounts per share of net assets are computed based on the net assets available for distribution to the shareholders and the numberof shares of common stock outstanding at the year-end.
The Company made a three-for-one stock split of the Company’s common stock effective May 18, 2004 that resulted in an increaseof 1,279,888.50 shares of the Company’s common stock.
Had this stock split been made as of April 1, 2002, amounts per share information for the years ended March 31, 2003 and 2004
would have been as follows:
Yen
Year ended March 31,

Net income
Cash dividends
Net assets

2003

2004

¥ 15,726.17
3,333.33
143,389.73¥ 19,612.92
3,333.33
157,275.33

9. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses included in selling, general and administrative expenses amounted to ¥64 million, ¥56 million and¥53 million ($493 thousand) for the years ended March 31, 2003, 2004 and 2005, respectively.

10. RETIREMENT BENEFIT EXPENSES
Retirement benefit expenses for employees amounted to ¥155 million, ¥103 million and ¥220 million ($2,048 thousand) for the years
ended March 31, 2003, 2004 and 2005, respectively.

11. LEASESThe following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of the leased assets at
March 31, 2004 and 2005, which would have been reflected in the consolidated balance sheets if finance lease accounting had been
applied to the finance leases currently accounted for as operating leases:
Millions of yen

Thousands of
U.S. dollars

March 31,

2004

2005

2005

Acquisition costs of leased property
Accumulated depreciation

¥19
19

¥–
–

$–
–

Net carrying amount

¥ –

¥–

$–

Lease payments relating to finance leases accounted for as operating leases amounted to ¥8 million, ¥1 million and nil for the years
ended March 31, 2003, 2004 and 2005, respectively.
There are no future minimum lease payments subsequent to March 31, 2004 relating to finance leases accounted for as operating leases.

12. CONTINGENT LIABILITIESAt March 31, 2005, the Company and its consolidated subsidiaries were contingently liable as guarantors of indebtedness of
unconsolidated subsidiaries and affiliates in the aggregate amount of ¥10,362 million ($96,471 thousand).
In addition, INPEX BTC Pipeline, LTD, a consolidated subsidiary, was contingently liable as guarantor of indebtedness of BTC Pipeline
Project Finance in the amount of ¥5,006 million ($46,606 thousand) at March 31, 2005.
INPEX CORPORATION Annual Report 2005

53

13. SUPPLEMENTARY CASH FLOW INFORMATIONa) Following are the assets and liabilities of INPEX Jawa and its subsidiary which became consolidated subsidiaries during theyear ended March 31, 2004 following the acquisition of their stock:
March 31, 2004

Millions of yen

Current assets
Long-term assets
Current liabilities
Minority interests
Minority interests in consolidated subsidiaries¥ 13,916
2,539(34)(2,526)(5,126)

Purchase of stock
Cash and cash equivalents held by subsidiaries

8,769(12,761)

Net proceeds¥ 3,992b) Summary of the increase in assets and liabilities following the acquisition of interests by INPEX Southwest Caspian Sea, Ltd.
during the year ended March 31, 2004 is as follows:
March 31, 2004

Millions of yen

Current assets
Long-term liabilities
Current liabilities¥

Purchase of mining rights¥(163,511)

5
164,494(988)c) Summary of the decrease in assets and liabilities following the sales of interests by INPEX Sahul, Ltd. during the year ended
March 31, 2004 is as follows:
March 31, 2004

Millions of yen

Current assets
Long-term liabilities
Current liabilities

¥

21
1,737
(203)

Net assets of business soldGain on sales of mining rights

1,555
1,497

Proceeds from sales of mining rights¥3,052d) Following are the assets and liabilities of Japan Oil Development Co., Ltd. which became a consolidated subsidiary during
the year ended March 31, 2005 due to a share exchange transaction:
March 31, 2005

Millions of yen

Thousands of
U.S. dollars

Current assets
Long-term assets¥ 79,502
53,682$ 740,173
499,786

Total assets
Current liabilities
Long-term liabilities

133,184
46,146
24,635

1,239,959
429,625
229,355

Total liabilities¥ 70,781$ 658,980e) Significant non-cash transaction: Increase in paid-in capital in the amount of ¥62,403 million ($ 580,979 thousand) due to theshare exchange transaction.

54

INPEX CORPORATION Annual Report 2005

14. SEGMENT INFORMATIONThe Company and its subsidiaries are primarily engaged in the joint exploration, development and production of natural gas and crude
oil in Indonesia, Oceania, the Middle East, the Caspian Sea and certain other areas. As net sales, operating income and total assets of
the oil and natural gas business constituted more than 90% of the consolidated totals for the years ended March 31, 2003, 2004 and2005, the disclosure of business segment information has been omitted.
The geographical segment information for the Company and its subsidiaries for the years ended March 31, 2003, 2004 and 2005
is summarized as follows:
Millions of yen
Year ended March 31, 2003

Asia-Oceania (a)Other (b)Total

Eliminations

Sales to third parties
Intergroup sales and transfers¥196,986–¥4,547–¥201,533–

Consolidated¥––¥201,533–

Total sales
Operating expenses

196,986
100,733

4,547
3,654

201,533
104,387–(124)

201,533
104,263

Operating income¥ 96,253¥ 893¥ 97,146¥

124¥ 97,270

Total assets¥176,650¥8,789¥185,439¥153,308¥338,747

NIS (b)Other (c)Total

Eliminations

Consolidated

–
6,506

¥ 7,409–¥218,831
6,506

¥

–
(6,506)¥218,831
–

6,506
4,754

7,409
5,440

225,337
131,620(6,506)(6,665)

218,831
124,955(a) Asia-Oceania: Indonesia, Australia, East Timor(b) Other: UAE

Millions of yen
Year ended March 31, 2004

Asia-Oceania (a)Sales to third parties
Intergroup sales and transfers¥211,422–

Total sales
Operating expenses

211,422
121,426¥

Operating income¥ 89,996¥

1,752¥ 1,969¥ 93,717¥

159¥ 93,876

Total assets¥214,325¥191,697¥ 6,412¥412,434¥112,864¥525,298(a) Asia-Oceania: Indonesia, Australia, East Timor(b) NIS: Kazakhstan, Azerbaijan(c) Other: UAE, IranMillions of yen
Year ended March 31, 2005

Asia-Oceania (a)¥NIS (b)Middle East (c)–20,900¥191,402
414

20,90016,472

191,816
63,977

Other (d)Sales to third parties
Intergroup sales and transfers¥287,185–¥

Total sales
Operating expenses

287,185
150,825

Operating income¥136,360¥

4,428¥127,839¥

Total assets¥236,647¥223,532¥179,413

Total

Eliminations

Consolidated¥–(21,314)¥478,587–(21,314)(21,353)478,587
209,924––¥478,587
21,314–
3

499,901
231,277(3)¥268,624¥39¥268,663¥4,228¥643,820¥135,408¥779,228(a) Asia-Oceania: Indonesia, Australia, East Timor(b) NIS: Kazakhstan, Azerbaijan(c) Middle East: UAE, Iran(d) Other: Angola, Brazil

INPEX CORPORATION Annual Report 2005

55

Thousands of U.S. dollars
Year ended March 31, 2005

Asia-Oceania (a)NIS (b)Middle East (c)Other (d)Total

Sales to third parties
Intergroup sales and transfers$2,673,727 $––
194,582$1,781,976
3,854

–
–

$4,455,703
198,436

Total sales
Operating expenses

2,673,727
1,404,199

194,582
153,356

1,785,830
595,634–28

4,654,139
2,153,217

Operating income$1,269,528 $

41,226$1,190,196

$

(28)

$2,500,922$

363$2,501,285

Total assets$2,203,212 $2,081,110$1,670,357$39,362$5,994,041$1,260,665$7,254,706$$

Eliminations

Consolidated–(198,436)$4,455,703–(198,436)(198,799)

4,455,703
1,954,418(a) Asia-Oceania: Indonesia, Australia, East Timor(b) NIS: Kazakhstan, Azerbaijan(c) Middle East: UAE, Iran(d) Other: Angola, Brazil

Overseas sales
Overseas sales, which include sales (other than exports to Japan) of its overseas subsidiaries, for the years ended March 31, 2003, 2004
and 2005 are summarized as follows:
Millions of yen
Year ended March 31, 2003

Asia (a)Other (b)Total

¥57,418¥5,737

28.5%

2.8%

¥ 63,155
201,533
31.3%

Asia (a)Other (b)Total¥58,089¥6,257

26.5%

2.9%

¥ 64,346
218,831
29.4%

Total

Asia (a)Other (b)TotalOverseas sales
Consolidated net sales
Overseas sales as a percentage of consolidated net sales(a) Asia: Korea, Taiwan, Indonesia, Singapore(b) Other: Australia

Millions of yen
Year ended March 31, 2004

Overseas sales
Consolidated net sales
Overseas sales as a percentage of consolidated net sales(a) Asia: Korea, Taiwan, Indonesia, Singapore(b) Other: Australia

Millions of yen
Year ended March 31, 2005

Overseas sales
Consolidated net sales
Overseas sales as a percentage ofconsolidated net sales

Asia (a)Other (b)Thousands of U.S. dollars¥167,741¥11,299¥ 179,040
478,587$1,561,689$105,195$1,666,884
4,455,703

35.0%

2.4%

37.4%

35.0%

2.4%

37.4%

(a) Asia: Korea, Taiwan, Indonesia, Singapore, Thailand, China(b) Other: Australia

15. SUBSEQUENT EVENTS(a) Japan National Oil Corporation, the Company’s major shareholder and the largest shareholder, was dissolved as of April 1, 2005,
pursuant to the “Law on the Abolishment of the Japan National Oil Corporation Law and the Metal Mining Agency of Japan Law” (theItem 93, 2002 Law). Accordingly, 692,307.75 shares of common stock and one special class share in the Company held by Japan
National Oil Corporation were transferred to the Minister of Economy, Trade and Industry. Shares in the Company’s group companies
held by Japan National Oil Corporation and its status in transactions with each Group company were also transferred to the Minister of
Economy, Trade and Industry or an independent administrative corporation; Japan Oil, Gas and Metals National Corporation.
(b) The following appropriations of retained earnings of the Company, which have not been reflected in the accompanying consolidated
financial statements for the year ended March 31, 2005, were approved at a general meeting of the shareholders held on June 22, 2005.

Cash dividends (¥4,000.00 = $37.24 per share)
Bonuses to directors and statutory auditors

56

INPEX CORPORATION Annual Report 2005

Millions of yen

Thousands of
U.S. dollars¥7,67998$71,492912

Report of Independent Auditors

INPEX CORPORATION Annual Report 2005

57

Reserves and Production

1. Oil and Gas Reserves
GeneralOur crude oil and natural gas reserve estimates have been extracted without material adjustments from the reserve report dated May
25, 2005 prepared by DeGolyer and MacNaughton, independent petroleum engineering consultants, which contains their evaluation of(i) both proved and probable reserves as of March 31, 2005 as well as (ii) proved reserves as of March 31, 2003 and 2004 and is based
upon their authority as experts with respect to such matters.
DeGolyer and MacNaughton conducted their review of our fields using the standards applied by the SEC with respect to our estimatesof proved reserves, and the standards applied by SPE/WPC with respect to our estimates of probable reserves. SPE/WPC standards
differ in various material respects from standards applied by the SEC.
Proved reserves are those estimated quantities which geological and engineering data demonstrate with reasonable certainty to be
recoverable in the future years from known reservoirs under existing economic and operating conditions as of the date the estimate is
made. Proved developed reserves are those reserves which can be expected to be recovered through existing wells with existing
equipment and operating methods. Proved undeveloped reserves are those reserves which are expected to be recovered from new wellson undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.
There is greater risk that the probable reserve estimates will not actually be recovered. Probable reserves are reserves susceptibleof being proved that are based on reasonable evidence of producible hydrocarbons within the limits of a structure or reservoir above
known or inferred fluid contacts but are defined to a lesser degree of certainty because of more limited well control and/or the lack ofdefinitive production tests. Since our proved reserve figures included in this report were prepared under SEC standards, some reserves
which might otherwise be classified as proved under SPE/WPC standards are included in probable reserves.
Estimation and evaluation of proved and probable reserves naturally involve multiple uncertainties. The accuracy of any reserves
evaluation depends on the quality of available information and engineering and geological interpretation. Based on the results of drilling,
testing and production after the report date of the estimates prepared by DeGolyer and MacNaughton, reserves may be significantly
restated upwards or downwards. Changes in the price of crude oil and natural gas may also affect our proved and probable reserve
estimates as well as estimates of our discounted future net cash flows because these reserves are evaluated, and the discounted future
net cash flows are estimated, based on prices and costs as of the date of the evaluation.

58

INPEX CORPORATION Annual Report 2005

Proved Reserves
The table below sets forth information about our net proved reserves of crude oil, condensate and LPG, and natural gas as of respective
fiscal year-ends, for the most recent four years.
Proved reserves of the INPEX Group (including our subsidiaries and affiliates) as of March 31, 2005 are 919.0 MMbbls of crude oil,condensate and LPG, and 3,756.5 Bcf of natural gas.

Asia and Oceania

Middle East

Caspian Sea
area

SubtotalInterest in reserves
held by equity
method affiliates

Total

Oil
(MMbbls)

Gas
(Bcf)

Oil
(MMbbls)

Gas
(Bcf)

Oil
(MMbbls)

Gas
(Bcf)

Oil
(MMbbls)

Gas
(Bcf)

Oil
(MMbbls)

Gas
(Bcf)

Oil
(MMbbls)

Gas
(Bcf)

Proved Developed andUndeveloped Reserves
Reserves as of March 31, 2002
Extensions and discoveries
Acquisition and sales
Revisions of previous estimatesInterim production
Reserves as of March 31, 2003

175.9
–
–
(16.6)(16.4)
143.0

3,548.8––
70.0(255.6)
3,363.1

16.8
–
–
–
(1.6)
15.3

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

192.7
–
–
(16.6)(17.9)
158.2

3,548.8––
70.0(255.6)
3,363.1

7.2
–
2.9
(0.8)
(1.1)
8.2

6.5
–
–
(0.6)
(1.6)
4.3

199.9
–
2.9
(17.4)(19.0)
166.4

3,555.2––
69.4(257.2)
3,367.4

Reserves as of March 31, 2003
Extensions and discoveries
Acquisition and sales
Revisions of previous estimatesInterim production
Reserves as of March 31, 2004

143.0
32.0
12.7
(4.4)
(15.4)
167.8

3,363.1
177.7
34.1
424.2
(295.6)
3,703.5

15.3
–
–
0.2
(1.7)
13.8

–
–
–
–
–
–

–
–
177.9
1.6
(3.7)
175.8(1)

–
–
–
–
–
–

158.2
32.0
190.6
(2.6)
(20.8)
357.4

3,363.1
177.7
34.1
424.2
(295.6)
3,703.5

8.2
–
(2.2)
(2.9)
(1.0)
2.1

4.3
–
(24.6)
22.0
(1.7)
–

166.4
32.0
188.4
(5.5)
(21.8)
359.5

3,367.4
177.7
9.5
446.2
(297.3)
3,703.5

Reserves as of March 31, 2004
Extensions and discoveries
Acquisition and sales
Revisions of previous estimatesInterim production
Reserves as of March 31, 2005

167.8
–
–
(0.6)
(18.9)
148.4

3,703.5
31.7–(127.7)(300.6)
3,307.0

13.8
–
361.1
(0.3)
(26.3)
348.3

–
–
–
–
–
–

175.8(1)––(40.2)(4.4)
131.2(1)

–
–
–
–
–
–

357.4
–
361.1
(41.1)(49.6)
627.9

3,703.5
31.7–(127.7)(300.6)
3,307.0

2.1
1.8
308.3
(0.4)
(20.6)
291.2

–
449.6
–
–
–
449.6

359.5
1.8
669.4
(41.4)(70.2)
919.0

3,703.5
481.3–(127.7)(300.6)
3,756.5

91.5

1,560.3

347.1–

25.2(1)–463.8

1,560.3

289.4

–

753.2

1,560.3

Proved Developed Reserves
As of March 31, 2005

Note: (1) Includes reserves attributable to a consolidated subsidiary in which there is a 49% minority interest.

INPEX CORPORATION Annual Report 2005

59

Standardized Measure of Discounted Future Net Cash Flows and Changes Relating to Proved Oil and Gas Reserves
The standardized measure of discounted future net cash flows and changes relating to proved oil and gas reserves have been extracted
without material adjustments from the reserve report dated May 25, 2005 prepared by DeGolyer and MacNaughton, independent
petroleum engineering consultants. In calculating the standardized measure of discounted future net cash flows, year-end constant priceand cost assumptions were applied to our estimated annual future production from proved reserves to determine future cash inflows.
Future development costs are estimated based upon constant price assumptions and assume the continuation of existing economic,
operating, and regulatory conditions. Future income taxes are calculated by applying the year-end statutory rate to estimated future pretax cash flows after provision for the tax cost of the oil and natural gas properties based upon existing laws and regulations. The discount
was computed by application of a 10% discount factor to the estimated future net cash flows.
We believe that this information does not represent the fair market value of the oil and natural gas reserves or the present valueof estimated cash flows since no economic value is attributed to potential reserves, the use of a 10% discount rate is arbitrary, andprices change constantly from year-end levels. We use the exchange rates of ¥105.63 and ¥107.41=US$1.00 as of March 31, 2004
and 2005, respectively.
(Millions of yen)
Total

Asia and Oceania

Middle East

Caspian Sea area
and others

Future cash inflows
Future production and development costs
Future income tax expenses

2,825,423(878,801)(784,076)

2,214,915(695,001)(668,008)

54,623(29,210)(23,208)555,885(154,590)(92,860)

Future net cash flows
10% annual discount for estimated timing of cash flows

1,162,546(551,371)

851,906(394,243)

2,205
(725)

308,435(156,403)

Standardized measure of discounted future net cash flows

611,175

457,6631,480

152,032(1)Share of equity method investees’ standardized measure of
discounted future net cash flows

4,652

–

4,652

–

Year ended March 31, 2004

Note: (1) Includes ¥152,032 million attributable to a consolidated subsidiary in which there is a 49% minority interest.
(Millions of yen)
Total

Asia and Oceania

Middle East

Caspian Sea area
and others

Future cash inflows
Future production and development costs
Future income tax expenses

5,100,161(1,655,890)(1,961,637)

2,618,749(899,958)(755,382)

1,766,276(575,188)(1,083,213)

715,136(180,744)(123,042)

Future net cash flows
10% annual discount for estimated timing of cash flows

1,482,634(645,170)

963,409(413,660)

107,875(50,866)

411,350(180,644)

Standardized measure of discounted future net cash flows

837,464549,749

57,009230,706(1)Share of equity method investees’ standardized measure of
discounted future net cash flows

35,733

17,267

17,754712

Year ended March 31, 2005

Note: (1) Includes ¥230,706 million attributable to a consolidated subsidiary in which there is a 49% minority interest.

60

INPEX CORPORATION Annual Report 2005

(Millions of yen)
Year ended March 31, 2005

Total

Asia and Oceania

Middle East

Caspian Sea area
and others

Standardized measure, beginning of period
Changes resulting from:
Sales and transfers of oil and gas produced,
net of production costs
Net change in prices, and production costs
Changes in estimated development costs
Extensions, discoveries and improved recovery
Revisions of previous quantity estimates
Purchases of minerals in Place
Accretion of discountNet change in income taxes
Other611,175

457,6631,480

152,032(179,889)
746,272(72,938)403(181,019)
44,306
146,728(311,170)
33,596(125,105)
325,658(64,656)403(78,457)–
82,095(76,310)28,458(44,531)219,801(5,955)–16,30744,30642,395(213,354)(3,440)(10,253)
200,813(2,327)–(118,869)–
22,238(21,506)
8,578

Standardized measure, end of period

837,464549,749

57,009230,706

Probable Reserves as of March 31, 2005
Probable reserves of the INPEX Group (including our subsidiaries and affiliates) as of March 31, 2005 are 1,510.9 MMbbls of crude oil,condensate and LPG, and 3,085.3 Bcf of natural gas.

Asia and
Oceania

Middle East

Caspian Sea area
and others

SubtotalInterest inreserves held byequity method
affiliates

Crude oil, condensate, and LPG (MMbbls) 103.9
Natural gas (Bcf)
2,719.9

437.1
–

542.1
221.4

1,083.1
2,941.3

427.8
144.0

March 31, 2005

Total

1,510.9
3,085.3

INPEX CORPORATION Annual Report 2005

61

2. Oil and Gas Production
The following table sets forth, in each of the principal geographical areas for the periods ended March 31, 2003, 2004 and 2005, ouraverage net daily crude oil and natural gas production and average net daily total production. The proportional interests in production
by our equity method affiliates are not broken down by geographical regions.
Year ended March 31,

Crude Oil Production (Mbbls per day)
Asia and Oceania
Middle East
Caspian Sea area
Subtotal

2004

2005

44.8
4.2
–

42.3
4.7
10.1

51.5
72.2
12.1

49.0

57.0

135.8

Our proportional interest in production by equity method affiliates

3.0

2.7

56.8

Total

52.0

59.8

192.6

Annual production (MMbbls)

19.0

21.8

70.3

Natural Gas Production (MMcf per day)
Asia and Oceania
Middle East
Caspian Sea area

700.3
–
–

809.9
–
–

823.5
–
–

700.3

809.9

823.5

4.4

4.6

–

704.6

814.5

823.5

Annual production (Bcf)

257.2

297.3

300.6

Total Production (Mboe per day)
Asia and Oceania
Middle East
Caspian Sea area

161.5
4.2
–

177.3
4.7
10.1

188.8
72.2
12.1

165.8

192.0

273.0

3.7

3.5

56.8

169.5

195.5

329.8

61.9

71.4

120.4

Subtotal
Our proportional interest in production by equity method affiliates
Total

Subtotal
Our proportional interest in production by equity method affiliates
Total
Annual production (MMboe)
Notes: (1) ‘Crude Oil’ includes condensate and LPG.
(2) JODCO’s net production includes royalties.

62

2003

INPEX CORPORATION Annual Report 2005

Subsidiaries and Affiliates
As of March 31, 2005

Consolidated Subsidiaries
Issuedcapital(Thousands)

Votingrights heldby us (%)

Exploration, development, production and sales of oil in ADMA Block,
United Arab Emirates¥18,800,000

100.00Japan

Exploration, development, production and sales of oil andnatural gas in South Natuna Sea Block B, Indonesia¥5,000,000

100.00INPEX Trading, Ltd.

Japan

Sales, agency, and brokerage in connection with crude oil andmarket research and sales planning in connection with oil andnatural gas sales¥50,000

100.00INPEX Jawa, Ltd.

Japan

Exploration, development, production and sales of oil and natural gas
in Offshore Northwest Java Block, Indonesia¥4,804,000

83.50

INPEX Sumatra, Ltd.

Japan

Exploration, development, production and sales of oil andnatural gas in Offshore Southeast Sumatra Block, Indonesia¥400,000

100.00INPEX Services, Ltd.

Japan

Management of owned properties and facilities¥65,000

100.00INPEX Tengah, Ltd.

Japan

Exploration, development, production and sales of natural gas
in Tengah Block in Offshore East Kalimantan, Indonesia¥1,020,000

100.00INPEX Alpha, Ltd.

Japan

Exploration, development, production and sales of oil and natural
gas in WA-10-L Block, Australia¥3,814,000

100.00INPEX Sahul, Ltd.

Japan

Exploration, development, production and sales of oil and natural
gas in JPDA03-12 Block in Joint Petroleum Development Area ofAustralia and East Timor¥4,600,000

100.00INPEX ABK, Ltd.

Japan

Exploration, development, production and sales of oil in Abu Al
Bukhoosh Block, United Arab Emirates¥2,500,000

95.00

INPEX Offshore Northeast Mahakam, Ltd.

Japan

Exploration of oil and natural gas in Saliki Block in Offshore
East Kalimantan, Indonesia¥943,000

100.00INPEX North Caspian Sea, Ltd.

Japan

Exploration and development of oil and natural gas in Offshore
North Caspian Sea Block, Kazakhstan¥45,500,000

45.00

INPEX Browse, Ltd.

Japan

Exploration and development of oil and natural gas inWA-285-P Block in Offshore West Australia, Australia¥18,950,000

100.00INPEX Masela, Ltd.

Japan

Exploration and development of oil and natural gas in
Masela Block, Indonesia¥13,263,000

50.00

INPEX East Arguni, Ltd.

Japan

Being dissolved¥268,000

100.00INPEX West Arguni, Ltd.

Japan

Being dissolved¥577,000

100.00INPEX South Natuna, Ltd.

Japan

Being dissolved¥520,000

100.00INPEX Southwest Caspian Sea, Ltd.

Japan

Exploration, development, production and sales of oil in
ACG Oil Fields, Azerbaijan¥53,594,000

51.00

INPEX North Natuna, Ltd.

Japan

Being dissolved¥1,020,000

100.00INPEX North Makassar, Ltd.

Japan

Being dissolved¥3,243,000

54.18

INPEX BTC Pipeline, Ltd.

CaymanIslands

Investment in pipeline construction companies

US$33,300

100.00Company Name

Location

Main businessJapan Oil Development Co., Ltd.

Japan

INPEX Natuna, Ltd.

INPEX CORPORATION Annual Report 2005

63

Issuedcapital(Thousands)

Votingrights heldby us (%)

Exploration of oil and natural gas in East Kalimantan Block in
Offshore East Kalimantan, Indonesia¥3,300,000

100.00Company Name

Location

Main business

INPEX Offshore North Mahakam, Ltd.

Japan

INPEX Offshore South Sulawesi Ltd.

Japan

Being dissolved¥1,345,000

100.00INPEX DLNGPL Pty Ltd

Australia

Investment in pipeline construction companies and operation ofpipeline businesses

A$63,240

100.00INPEX Timor Sea, Ltd.

Japan

Exploration and development of oil and natural gas in JPDA03-01
Block in Joint Petroleum Development Area of Australia and East Timor¥2,275,000

100.00

Azadegan Petroleum Development, Ltd.

Japan

Appraisal and development of Azadegan Oil Field, Iran

¥10,000

100.00Company Name

Location

Main business

Issuedcapital(Thousands)

Votingrights heldby us (%)

BP-Japan Oil Development Company Ltd.

U.K.

Financing for oil exploration and development projects
conducted by Abu Dhabi Marine Areas Ltd.

£322

45.00

Angola Japan Oil Co., Ltd.

Japan

Exploration, development, production and sales of oil in
Offshore 3/80 Block, Angola¥10,500,000

19.60

AJOCO Exploration Co., Ltd.

Japan

Exploration, development, production and sales of oil in
Offshore 3/85 Block, Angola¥6,400,000

25.00

AJOCO’91 Exploration Co., Ltd.

Japan

Exploration, development, production and sales of oil in
Offshore 3/91 Block, Angola¥2,996,000

25.00

Bontang Train G Project Finance, Ltd.

Japan

Financing for construction of LNG production facility in
Bongtang Area in East Kalimantan, Indonesia¥50,000

40.00

Bontang LNG Train H Investment, Ltd.

Japan

Financing for construction of LNG production facility in
Bongtang Area in East Kalimantan, Indonesia¥50,000

40.00

Albacora Japão Petróleo Limitada

BrazilLease of production facilities in Albacora Block in Offshore
North Campos, Brazil

Reals 6,525

50.00

Frade Japão Petróleo Limitada

BrazilExploration of oil and natural gas in Frade Block in
Offshore North Campos, Brazil

Reals 98,309

0.0003

Project Finance BLRE, Ltd.

Japan

Financing for repayment of LNG production facility in
Bontang Area in East Kalimantan, Indonesia¥20,000

30.00

INPEX Offshore North Campos, Ltd.

Japan

Financing for oil and natural gas exploration and development
projects conducted by Frade Japão Petróleo Limitada¥6,152,000

37.50

MI Berau B.V.

Netherlands

Exploration, development, production and sales of natural gas inBerau Block in Papua, Indonesia

Euro 648,538

44.00

JJI S&N B.V.

Netherlands

Development and production of oil and natural gas in
Offshore Soroosh Field, IranEuro 36,383

25.00

Affiliates Under Equity Method

64

INPEX CORPORATION Annual Report 2005

Other Investments
As of March 31, 2005

Company Name

Location

CapitalINPEX Investment

Main Business

Canada Oil Sands Co., Ltd.

Japan

¥36,483 million¥1,015 million

Exploration, development and production ofoil sand in Athabasca Block, Canada

Indonesia Nippon Oil Corporation, Ltd.

Japan

¥13,814 million¥2,393 million

Financing for exploration and development in
PERTAMINA Unit, Indonesia

Burma Petroleum Development Co., Ltd.

Japan

¥346 million¥15 million

Financing for exploration in Offshore Martaban,
MyanmarJapex New Nanhai Ltd.

Japan

¥3,100 million¥93 million

Exploration, development, production and salesof oil in 16/06 Block in the Pearl River Mouth
Basin, China

New Huanan Oil Development Co., Ltd.

Japan

¥3,000 million¥60 million

Exploration, development, production and salesof oil in 16/06 Block in the Pearl River Mouth
Basin, China

Jawa Oil Co., Ltd.

Japan

¥6,200 million¥744 million

Exploration, development, production and salesof oil in RDL Oil Field, Indonesia

Sakhalin Oil and Gas Development Co., Ltd.

Japan

¥22,592 million¥973 million

Exploration and development of oil and natural
gas in three fields (Odoptu, Chayvo, Arkutun-Dagi)
in Offshore Sakhalin Island, Russia.

Wandoo Oil Development Co., Ltd.

Japan

¥3,000 million¥450 million

Exploration, development, production andsales of oil and natural gas in WA-14-L,
WA-256-P, WA-286-P, WA-325-P, WA-226-P,
T/18P and T/L1 Block in Offshore Dampier,West Australia, Australia

INPEX CORPORATION Annual Report 2005

65

Corporate Data

Corporate Name:

INPEX CORPORATION

Established:

February 1966

Capital:¥29.46 billion (As of March 31, 2005)

Address:

4-1-18 Ebisu, Shibuya-ku, Tokyo 150-0013, Japan(Ebisu Neonart Bldg. Floors 14-18)

Telephone:+81-3-5448-1201

Facsimile:+81-3-5448-1259

URL:

http://www.inpex.co.jp

Overseas Offices:

INPEX Jakarta Office
7th Floor, Midplaza I, Jalan,Jenderal Sudirman Kav. 10-11, Jakarta 10220, Indonesia
Tel: 62-21-570-0557 Fax: 62-21-570-0575

Tehran Office
No. 25, 35th St., Alvand Ave, Argentina Square,
Tehran, Iran
Tel: 98-21-878-1194 Fax: 98-21-878-3261

Perth Office
Level 27, Exchange Plaza, 2 The Esplanade,
Perth, Western Australia 6000, Australia
Tel: 61-8-9223-8433 Fax: 61-8-9223-8455

JODCO Abu Dhabi Branch
Al Masaood, Tower Sheikh Hamdan Street, P.O. Box 2659,
Abu Dhabi, UAE
Tel: 971-2-6345612
Fax: 971-2-6336695

Board of Directors: Chairman

66

Kunihiko Matsuo

President

Naoki Kuroda

Executive Senior Vice President

Katsujiro Kida

Executive Senior Vice President

Mutsuhisa Fujii

Managing Director

Kazuhisa Konoma

Managing Director

Seiji YuiManaging Director

Noboru Tezuka

Managing Director

Kunio Kanamori

Director

Michio Hikari

Director

Sadafumi Tanigawa

Director

Shunichiro Sugaya

Director

Seiya Ito

Director

Wataru Tanaka

Director (Outside Director)

Kazuo Wakasugi

Director (Outside Director)

Hisanori Yoshimura

Director (Outside Director)

Junji Sato

Director (Outside Director)

Kazuo Ogawa

Director (Outside Director)

Michihisa Shinagawa

AuditorNobuo Kawa

Auditor

Shigeru Watanabe

Auditor (Outside Auditor)

Tadaaki Tokunaga

Auditor (Outside Auditor)

Ryoichi Ono

INPEX CORPORATION Annual Report 2005

Stock Information(As of March 31, 2005)[Share Data][Authorized Shares]

Profile2,356,800 common shares
1 special class share[Number of Shareholders/Issued and Outstanding Shares]

We are the leading upstream oil and gas company in Japan, engaged for almost the past four decades in the exploration,
development and production of crude oil and natural gas outside Japan. Since our foundation in 1966, we have steadily
and actively engaged in exploration and development in many promising regions around the world: Indonesia and Australia, as our core areas, as well as the Caspian Sea, the Middle East and South America. Based on production and reserve

Common shares: 21,809 shareholders/1,919,832.75 shares
Special class shares: 1 shareholder/1 share
Note: INPEX CORPORATION issued one special class share to Japan National Oil Corporation (JNOC) on November 17, 2004. With the dissolution of JNOC
on April 1, 2005, this special class share was transferred to the Minister of Economy, Trade and Industry effective from the date of JNOC’s dissolution.
The Company’s Articles of Incorporation state that resolutions regarding certain major corporate decisions approved by the ordinary general meetingof shareholders and the Board of Directors also require a resolution approved by a meeting of the special class shareholder.

amounts, we are the largest upstream oil and gas company in Japan. As of March 31, 2005, our total net proved reserves
based on the SEC standard were approximately 1,545 MMboe, and for the fiscal year ended March 31, 2005 our net
production was 330 Mboe per day.

[Shareholding by Shareholder Type*1]
Individuals and Other: 2.37%
Shareholders: 21,037
Shares: 45,496
Foreign Corporations and Other: 6.85%
Shareholders: 238
Shares: 131,552

JNOC*2 *3: 36.06%
Shareholders: 1
Shares: 692,307.75

Financial Institutions (Including Trust Accounts):
12.03%
Shareholders: 151
Shares: 230,765
Securities Companies: 0.34%
Shareholders: 33
Shares: 6,609

Other Domestic Corporations: 42.35%
Shareholders: 349
Shares: 813,103

Notes: 1. Shareholding ratios are for all issued and outstanding shares
2. Following the dissolution of Japan National Oil Corporation (JNOC) on April 1, 2005, all shares held by JNOC were transferred to the Minister of
Economy, Trade and Industry effective from the date of JNOC’s dissolution.
3. Excludes one special class share.

[Major Shareholders (Common Shares)]
Name

Number of Shares

Holding (%)(Minister of Economy, Trade and Industry)(1)692,307.75

36.06

Japan Petroleum Exploration Co., Ltd.

Japan National Oil Corporation

Contents
Financial Highlights ................................................................ 1
Operating Highlights .............................................................. 2
A Message from Management .............................................. 3
The Ambition to Grow ........................................................... 4
Global Business Activities ...................................................... 10
Corporate Governance .......................................................... 26
Financial Section ................................................................... 29
Reserves and Production ...................................................... 58
Subsidiaries and Affiliates ...................................................... 63
Other Investments ................................................................. 65
Corporate Data ..................................................................... 66
Stock Information .................................................................. 67

FORWARD-LOOKING STATEMENTS:
This annual report includes forward-looking information that reflects theCompany’s plans and expectations. Such forward-looking information isbased on the current assumptions and beliefs of the Company in light of
the information currently available to it, and involves known and unknown
risks, uncertainties, and other factors. Such risks, uncertainties and otherfactors may cause the Company’s actual results, performance, achievements or financial position to be materially different from any future results,
performance, achievements or financial position expressed or implied bysuch forward-looking information. Such risks and uncertainties include,
without limitations, fluctuations in the following:– the price of and demand for crude oil and natural gas;
– exchange rates; and– the costs associated with exploration, development, production andother related expenses.

248,174.56

12.93

Mitsubishi Corporation

189,594

9.88

Mitsui Oil Exploration Co., Ltd.

176,760

9.21

The Master Trust Bank of Japan, Ltd. (Trust Account)

55,419

2.89

Japan Trustee Services Bank, Ltd. (Trust Account)

51,9102.70

Marubeni Corporation

46,446

2.42

Sumitomo Corporation

46,446

2.42

JFE Steel Corporation

44,1902.30

23,455.44

1.22

Dai-ichi Oil Development Co., Ltd.

Note: (1) Following the dissolution of JNOC on April 1, 2005, all shares held by JNOC were transferred to the Minister of Economy, Trade and Industry
effective from the date of JNOC’s dissolution.

The Company undertakes no obligation to publicly update or revise any
information in this annual report (including forward-looking information).

INPEX CORPORATION Annual Report 2005

67

INPEX CORPORATION
Annual Report 2005

Printed in Japan on recycled paper.

2005
INPEX CORPORATION
Annual Report 2005
Year ended March 31, 2005