Business Model and Strengths
In its oil and gas development business, INPEX employs a business model that
focuses on stable production and supply, as well as the reinvestment of cash ﬂows
obtained from production activities toward the acquisition of new reserves and thediscovery and development of oil and gas which contribute to further production
revenues. This cycle is the wellspring for sustainable growth as a company.

INPEX’s Strength 1

Dynamic Growth Scenario

Ichthys LNG ProjectINPEX is the ﬁrst Japanese company to develop theglobal large-scale LNG project at Ichthys in Australia asan operator. Steps are also being taken to quickly bringto fruition the Abadi LNG project in Indonesia, another
undertaking after the Ichthys project in which INPEX
will serve as the operator. The Company’s net production volume is currently at the level of around morethan 500 thousand boed, and there are prospects ofan increase to 600-700 thousand boed following thestart of production at Ichthys and other projects. We
are focusing on Ichthys development work, which will
increase the corporate value of our company.

INPEX’s Strength 2A Balanced Portfolio andStrong Reserve Volume/Resources4.97 billion boe(Proved and probable reserves)

INPEX has secured a balanced portfolio while establishing appropriate risk management by combining different projects to ensure an optimal balance across such
key parameters as the oil and natural gas ratio, regional
distribution as well as exploration, development andproduction activities. Turning to the Company's reserve
volume, the source of its corporate value, INPEX holds
a proved and probable reserve volume of 4.97 billion
boe as well as an abundance of possible reserves andcontingent resources that are not included in probablereserves. Looking ahead, we expect to expand proved
and probable reserves over the medium to long term.

08

INPEX CORPORATION Annual Report 2016

Growth ofProduction
VolumeIncreasingReserves

INPEX’s Strength 3

Natural Gas Supply Chain
Domestic natural gas pipeline network

1,400 km

Proactive
Exploration andDevelopment
Investment

Market Trend andManagement Policy

Accountingof Revenue
Attributableto Sales

3

INPEX owns a natural gas pipeline network in Japan ofaround 1,400 km. Plans are in place for work to be completed on the Toyama Line some time during the middle of the year. On completion, the total length of thepipeline network will total 1,500 km. The Naoetsu LNG
Terminal commenced operations in December 2013,
bringing one step closer the realization of a natural gas
supply chain that links natural gas assets in Japan andoverseas and the domestic market. By receiving LNG
from the large-scale Ichthys project and other sources,
the Company will build a global gas supply chain andplan further value-added improvements.

INPEX’s Strength 4Strong Financial Base
Equity ratio:

67.1%

Net debt/Net total
capital employed:-8.1%

A healthy balance sheet and cash reserves are essential for oil and gas E&P companies. This reﬂects boththe high degree of risk associated with E&P activities
and the need to have sufﬁcient funds on hand to takeadvantage of major investment opportunities. INPEX
has secured a strong ﬁnancial position. As of March 31,
2016, our company had an equity ratio of 67.1% and aratio of net debt to net total capital employed of –8.1%.
(Cash and deposits were greater than interest-bearingdebts.) Compared to the oil majors and other globalpeers, this represents a sound level of ﬁnancial strength.

INPEX CORPORATION Annual Report 201609

The Structure and Mechanism ofOil and Natural Gas Exploration and Development
The business activities of the oil and gas industry can be envisioned as the ﬂow of ariver. The upstream consists of development and production of oil and natural gas.
The midstream is where products are transported. The downstream refers to reﬁningand sales. Our mainstay business is to handle operations in the upstream including theexploration, drilling, production, lifting and sales of crude oil and natural gas. As shownin the business ﬂow below, upstream business activities can be further classiﬁed into
the acquisition of blocks, exploration, appraisal, development, production and sales.

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

Signing ceremony of a contract

Sales

There are many methods for selling crude oil linked tospot prices (market prices established one time per transaction), the spot prices themselves being mainly decided
based on crude oil, which has become the transaction
benchmark. Representative crude oil spot prices are thosequoted for Middle East Dubai crude, North Sea Brent
crude and West Texas Intermediate (WTI) from the UnitedStates, to name but a few.
In contrast, because projects characteristically requirelarge-scale investment, in many cases sales of liqueﬁed
natural gas (LNG) result from long-term sale and purchase
contracts concluded from both producers and buyers.

Major oil and natural gas
producing regions (image)

Production

The extracted oil and naturalgas are refined and processed.
After separating oil and removing impurities (e.g., carbon gas,hydrogen), we ship natural gasthat can be used as a product.
LNG tanker

10

INPEX CORPORATION Annual Report 2016

Where do crude oil and natural gas come from?
Crude oil and natural gas are thought to originate from organic matter,such as the remains of once-living organisms that accumulated at thebottom of seas and lakes, that was then subjected to extreme heat andpressure underground. Crude oil and natural gas that have formed deep
underground are lighter than the water in the earth, allowing them togradually rise to the surface over a long period of time. If the crude oil andnatural gas encounter highly dense geological formations on the way tothe surface, however, deposits form that become oil and gas ﬁelds.

Exploration

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

3Market Trend andManagement Policy

AppraisalOnce the presence of oil
and natural gas has been
conﬁrmed, we drill appraisal
wells to assess the extent
of the oil and gas ﬁelds andto evaluate the amount ofreserves. In addition, we makecomprehensive
judgments
regarding the commercial viability of the ﬁelds.

Drilling of appraisal wells

Development

After a ﬁnal investment decision (FID) has been made, steps aretaken to construct the necessary facilities to engage in crude oiland natural gas production andshipment. This includes facilities that separate resources into
their liquid and gaseous states
to remove impurities and pipelines to facilitate transportation.
In addition, the drilling of production wells is undertaken toDrilling of production wells
extract crude oil and natural gas.

INPEX CORPORATION Annual Report 2016

11The Medium- to Long-Term Vision ofINPEX and Investment Plans
In May 2012, the Company formulated the INPEX Medium- to Long-Term Vision thatclariﬁed key initiatives up to the Ichthys start-up as well as medium- to long-term
growth targets and the achievement of those targets. The Medium- to Long-Term
Vision deﬁnes three growth targets and three management policies and clearly speciﬁes our key initiatives.

Three Growth Targets

1

We have set three growth targets necessary for sustainable growth andwill conduct key initiatives to achieve them.

2

Continuous Enhancement ofE&P Activities
Achieve net production volume of1 million boed

Strengthening
Gas Supply Chain
Achieve domestic gas supply volume of

2.5 billion m3/yearby the early 2020sby the early 2020s(3.0 billion m³/year in the long term)

Three Management Policies

We are positioning ourselves to become a top-class international oil andgas E&P company and are improving and building our management baseto evolve into an integrated energy company.

12Securing/Developing Human
Resources and Building
an Efﬁcient Organizational
Structure

Investment for Growth andReturn for Shareholders
Investment

Dividend Payout Ratio

Over five years （%）•Recruit and utilize personnel in and outside ofJapan to develop global professionals.
•Establish an efﬁcient business execution
system to facilitate decision making.

¥3.5trillion

200

Including
exploration
expendituresof around100¥300billion
From the year ended
March 31, 2013, toMarch 31, 2017

12

1,000

4000Apache (US)

0.5

1.0

Woodside (AU)
1.5

2.0

Proved reserves: 3.26 billion boe

Proved and probable reserves (Billion boe)

INPEX CORPORATION Annual Report 201613.2%

14.0% 14.3%

33.8%

0

2012/3

2013/3

2014/3

2015/3

2016/3

From the period in which Ichthys starts production,
we will be aware of our position as a top-classinternational oil and gas E&P company and will plan
appropriate returns for our shareholders.

anynmptioosi &P copE
firm gasAnadarko (US)dhablis oil an
ats
nal
oe
INPEX
g t atio s
kin tern 2020eeni
Syarlan
Probable reserves toas the e
upgrade to provedbythrough the shift ofdevelopment

Santos (AU)20050

Occidental (US)To achieve 1 MMboedof net production by800
the early 2020s
through medium- to600 long-term investment
514 thousand boed

Proved reserves and production volume indicated in this chart are from documents disclosed by the major E&P companies in ﬁscal
2015. The size of the circle shows the market
value of each company as of March 31, 2016.
Currently, INPEX is positioned as a mid-tier
E&P player. As our operations expand throughnew milestones including the start of production at the Ichthys LNG Project in Australia, wewill endeavor to secure a foothold among theworld’s oil majors by the early 2020s.

Net production volume (Thousand boed)

Proved Reserves,Net Production Volume
and the Market Value of theMajor International Oil andGas E&P Players

156.7%

150

2.5

3.0

3.5

4.0

4.5

5.0

Probable reserves: 1.71 billion boe

5.5

Our Vision

Becomea Top-Class

3International Oil and Gas
E&P Company
Reinforcement ofRenewable Energy Initiatives

for the next generation

Maintain Financial Strength

Funding Source

50

Approximately ¥992.8 billionof cash available on handOwn funds
Target: 50% or higher
Equity ratio

67.1%(As of March 31, 2016)20

Target: 20% or less0Net debt/Net total
capital employed-8.1%(As of March 31, 2016)(As of March 31, 2016)

Cash flows

Future operating cash ﬂows
obtained each year

Become an Integrated
Energy Company

3Market Trend andManagement Policy

Promote efforts tocommercialize
renewable energies andreinforce R&D activities

with natural gas as the core

3

Responsible Management
as a Global Company•Promote continuous improvements
in corporate compliance and HSE
initiatives.
•Build trust-based working relationships
with stakeholders throughinteractive communications.

Bank loans•Lending from JBIC
•Guarantee from JOGMEC•Project ﬁnance

MEDIUM- TO LONG-TERM VISION OF INPEX:
Ichthys and Our Growth Beyond

For details, please refer to the booklet entitled “MEDIUMTO LONG-TERM VISION OF INPEX: Ichthys and Our
Growth Beyond,” or refer to the following Web site:
4www.inpex.co.jp/en/vision

INPEX CORPORATION Annual Report 201613