Performance / Message

Greetings from the Representative Directors

We aim for sustained growth incorporate value by providing stable andefﬁcient energy supplies.
We would like to begin by thanking everyone for your support andunderstanding of our business.
INPEX made a new start through a business integration on October
1, 2008, which has made our management structure more efﬁcient andproactive. We continue to be Japan’s leading oil and natural gas E&P
company and are pushing forward with our exploration, development andproduction activities both in Japan and around the world.
In addition to instability in crude prices and the foreign exchange
rate, the E&P business has been experiencing great changes marked byintensifying competition for resources, increased geopolitical risk and a risein nationalism in oil-producing countries. This is occurring at a time when
global energy demand is expected to increase due to economic growth,
especially in the emerging economies. Amid this business environment,strong growth in demand for natural gas, in particular, is forecast both inJapan and worldwide.
We view the contribution to providing a stable and efﬁcient supply ofenergy as our social mission and aim to maintain and expand our reserves
and production in the medium to long term. We will continue to do
everything in our power to realize steady growth in our corporate value, so
as to meet the expectations of our stakeholders including our shareholders.
On behalf of everyone at INPEX we would like to extend our sincere
condolences to all those affected by the Great East Japan Earthquake, which
occurred on March 11, 2011.
We look forward to your continued support and understanding.
July 2011

Naoki Kuroda

Masatoshi Sugioka

Toshiaki Kitamura

ChairmanVice Chairman

President & CEO

Toshiaki Kitamura

Masatoshi Sugioka

President & CEO

Vice Chairman

Naoki Kuroda
Chairman016

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011017

Performance / Message

Message from the President
To Our Stakeholders

A FirmCommitment

Sustainable

toEnergy
Seeking to establish
a ﬁrm position among
the leading global
upstream companies

Toshiaki Kitamura
President & CEO

018

INPEX CORPORATION Annual Report 2011

During the year ended March 31, 2011, we continued to achieve solid performanceand provide a stable dividend as in the previous year. In addition, we made steadyprogress in developing a number of projects, most notably our large-scale liqueﬁed
natural gas (LNG) projects, to help reach our future growth targets. I hereby
present to our stakeholders my review of the ﬁrst year since my appointment asPresident, reporting on such topics as the business environment surrounding ourcompany and the progress we have made in our projects.

1. Looking Back over My First Year as President– The Role of the President
Since being appointed President in Juneof last year, I have been at the helmof the company as we have steadilyreached one milestone after another inpursuit of our project targets.
The role of the President is toensure the effective and efﬁcient
allocation of resources and operate
the company efﬁciently as it steadily
progresses toward the full realization ofits projects. I believe that, in particular,
this means placing the right people in
the right jobs and establishing ﬁnancing
plans, and I am pleased to be able toreport to our stakeholders some deﬁnite
results in that regard.
Another important role of
the President is to maximize ouropportunities to acquire quality interests
while minimizing risks amid harshcompetition for resources in a complex
and ever-changing international arena.
Such a situation requires developing
and promoting international
relationships based on mutual trustwith the oil-producing countries
and our partners. An oil-producing
country entrusts its precious oil andgas resources to an E&P company,
and whether that company succeeds
in development is extremely importantto the economic development of thatcountry. INPEX has demonstrated
reliance and trust as a company basedin Japan, and has proven results as wecontinue to move forward with projects
in more than 20 countries worldwide.
I believe that these factors have beenenhancing mutual trust with the oilproducing countries and our partners at
the international level.
As I look back over the past year,
in the course of face-to-face discussions
with the leaders of oil-producing
countries and the top managementof the oil majors, I get the sense that
our international relationships basedon mutual trust and our internationalpresence are reaching a much higher
level with the progress of our largescale LNG projects — Ichthys andAbadi. Although it has been a year
since we faced the difﬁcult decisionsuch as withdrawal from the Azadegan
Oil Field in Iran, we have increased thetrust of oil-producing countries and ourpartners by producing steady results
on a daily basis, and this has brought
us more opportunities to acquire
quality interests. I have developed anincreasing awareness of our successful
growth story over the past year.

One role of the President is tomaximize opportunities to acquire
quality interests while minimizingrisks. This requires the developing
and promoting of international
relationships based on mutual trust.
INPEX CORPORATION Annual Report 2011019

3. Management Strategies for This Business Environment

A catastrophic earthquake struck Japan
In achieving anin March of this year, causing many
casualties. On behalf of INPEX, I would
optimal mix oflike to express our sympathies to thoseenergy sources,
affected and our desire for a speedy
the most important recovery.
Since the earthquake, I havefactor is security,
become even more aware of theof our company’s rolefollowed by supply importancein providing a stable and efﬁcientstability, economic supply of energy. During the oil crisisin the 1970s in Japan, I witnessed
rationality andthe disturbance to the lives of people
caused by the energy shortage.
environmental
Looking back on my ﬁrsthandconsiderations.
experiences during that oil crisis andthe recent earthquake, it is my belief
Natural gas takesthat in achieving an optimal mix ofon ever moreenergy sources, the most importantis security, followed by supply
importance as the factor
stability, economic rationality andenvironmental considerations.
natural gas shift
In reviewing the optimal mix ofproceeds.
energy sources after the impact of

INPEX is currently a mid-tier global
independent upstream company,
with production volume and reserves
ranking after the oil majors. Our goal is
to continue to enhance our corporate
value, with our long-term goal being
to achieve net production volumeof 800,000–1 million barrels of oil
equivalent per day (boed) by 2020.
We also aim to establish a ﬁrm position
among the top group of global
independent upstream companies
with well-balanced assets, ﬁnances andhuman resources.
We have been pursuing three
medium- to long-term strategies toachieve our growth targets.

the earthquake, it is clear that thecomparative importance of renewableenergy sources such as solar power
will increase in the long term, but
in the short to medium term fossil
fuels, such as oil, coal and naturalgas, will continue to play a majorrole, in particular, natural gas due toenvironmental considerations.
Global energy demand isexpected to continue to be ﬁrm as
economic growth, especially among
the emerging economies, proceeds
apace. Demand for natural gas, inparticular, is expected to grow broadly
due to its superiority over oil and coalin terms of price and environmental
considerations. It is expected to growat a rate of 2% annually from 2010
through 2035, accounting for 25% ormore of total global primary energy
demand in 2035 (according to theInternational Energy Agency (IEA)
outlook). Japan and other countries020

are currently reviewing their mediumto long-term energy policies due tomatters such as the impact of therecent earthquake and climate change,and I believe that we will see the shift
to natural gas accelerate.
As part of this shift to naturalgas, the development of “shale gas,”an unconventional natural gas source,
is progressing in North America. The
main supply of natural gas in Asia is in
the form of LNG. This differs from themainly pipeline-based supply that is
the focus of the supply system in North
America and Europe, so I believe at
this time that the rapid development ofshale gas will have no direct impact on
the LNG projects being developed byINPEX.
In addition to reconsiderationof the optimal energy mix, the stableand efﬁcient supply of energy will takeon increasing importance in light offactors such as resource nationalism (asseen in some oil-producing countries)
and intensifying competition forresources by emerging economies,
primarily China. As a natural gas
supplier in Japan, we have been
supplying domestically produced
natural gas to the Japanese market
for decades. Henceforth, in addition
to the gas supplies from overseas
projects operated by INPEX, we intend
to enhance our provision of stableand efﬁcient supplies of energy andcontinue to expand our presence not
only in Japan but also in the global
natural gas market.

1. Sustainable Expansion of
Our E&P Business
Get existing projects such as Ichthysand Abadi up and running, andcontinue to add to production bydiscovering new oil and gas ﬁelds
through exploration and by acquiring
interests in existing oil and gas ﬁelds.

2. Establishment of a Gas Supply
Chain and Proactive Expansionof Gas Business
Build the Naoetsu LNG Receiving
Terminal, further expand theapproximately 1,400-km trunk naturalgas pipeline network connecting theKanto and Koshinetsu regions in Japanand combine overseas LNG projects
with domestic gas to establish a stablesupply network.

3. Evolution into a Company
that Offers Diversiﬁed Formsof Energy
Look to the future by commercializing
new forms of energy, including
unconventional sources such as
shale gas, gas-to-liquids (GTLs) andgeothermal power generation.

pp. 30–31

pp. 32–33

for more about Market Environment

for more about Management Strategies

INPEX CORPORATION Annual Report 2011

Performance / Message

2. The Business Environment Surrounding
Oil and Gas Development

Achieve net production volume of800,000 –1 million boed by 2020and establish a ﬁrm position in thetop group of global independent
upstream companies with the rightbalance of assets, ﬁnances andhuman resources.
We must not be optimistic about
the path to achieve our goals. In realterms, it will require measures to deal
with the upside risk in development costs
associated with a rise in materials prices,
as well as overcoming the increasingly
high technological hurdles associatedwith new exploration and development
projects in polar regions or deep water.
Also, as the April 2010 oil spill in theGulf of Mexico demonstrated, we must
work even harder to establish accident
and disaster response measures,
maintain safety operations and minimize
environmental impact. The appropriate
and timely response to country risk, suchas political instability in the Middle Eastand North Africa, is also important.
I believe we can overcome theseissues one by one by fully employing
our characteristic strengths, such as
our experience, our solid ﬁnancial
basis and the technical capabilities
we have amassed at every stage of
our exploration, development andproduction efforts.
We are strengthening our safety
management by establishing ties
with our partners and by putting ourexperience as an operator to use. We arealso striving to cultivate personnel who
can operate successfully in the global
arena by actively dispatching younger
employees to overseas sites, where
they can accumulate experience andtechnical skills. Such efforts serve to help
us enhance our presence as a global
independent upstream company.

Gulf of Mexico Oil SpillAn explosion at an oil rig operated
in the Gulf of Mexico offshore thecoast of Louisiana caused a rupture
in a well pipe, resulting in anenormous outﬂow of crude to theGulf of Mexico.

INPEX CORPORATION Annual Report 2011021

Consolidated net sales¥ 943.1 billion

up 12.2% (year on year)
Consolidated net income¥ 128.7 billion

up 20.0% (year on year)

Ichthys LNG Project

Abadi LNG Projectpp. 40–43
for more about the Ichthys LNG Projectpp. 44–45
for more about the Abadi LNG Project

022

INPEX CORPORATION Annual Report 2011

Although there were negative factors
affecting our performance in the year
ended March 31, 2011, such as lowernatural gas sales volumes and yen
appreciation, consolidated net sales
were up 12.2% to ¥943.1 billion andconsolidated net income was up 20.0%
to ¥128.7 billion due to the increase in
crude oil prices and the concomitantrise in gas prices.
We made steady progressover the past year in our Ichthys andAbadi LNG Projects, into which wehave focused considerable effort. For
the Ichthys Project, we reached one
milestone after another in approaching
the ﬁnal investment decision (FID) ,which is planned for Q4 2011. Theengineering portion of the front-endengineering and design (FEED) workfor the production facilities, whichstarted in 2009, is nearly complete, andwe are currently selecting contractors
for the engineering, procurement
and construction (EPC) phase.
Administrative procedures for theconstruction of the LNG production
facilities are under way, and our LNG
marketing activities led us to reachbasic agreements with a numberof LNG buyers in June of this year.
Also, we have made active efforts tocontribute to local communities, one
example of which was the opening of a
trade training center for local youths inApril of this year.

At the Abadi Project, we havebeen engaged in preparatory steps for
FEED work, as well as environmental
and social impact assessments,
since obtaining approval for theplan of development (POD) from theIndonesian Government in Decemberof last year. We are examining
development of this project based on
the “ﬂoating LNG” concept. In thecourse of moving toward full-scale
development, we looked into forminga strategic partnership with a company
with experience and proven resultsin the LNG business and large-scale
offshore development. As a result,
INPEX chose to invite Shell, an oil
major, and signed an agreement with
it for the transfer of a portion of ourparticipating interest.
Insofar as other projects, we havetransitioned to development activities
in the Kitan oil ﬁeld in the Timor Sea,acquired a participating interest in
the Sebuku Block near the Offshore
Mahakam Block and acquired anadditional interest in the ACG projectin Azerbaijan. Our exploration projects
include the acquisition in February ofthis year of new deepwater exploration
blocks in the U.S. Gulf of Mexico —a ﬁrst for our company — and thediscovery of oil and gas at an offshore
exploratory well in Vietnam, also inFebruary.
The earthquake that occurredin March caused no major damage
to our main domestic facilities or
natural gas pipeline network. The
earthquake spurred us to proceedwith some necessary improvements,
such as drafting an additional business
continuity plan (BCP) aimed atpreserving important headquartersfunctions when a major earthquake
occurs.

Performance / Message

4. Results for the Past Year and Our Business Activities

5. Investment Plans and Financial Strategies
We will make continuous investmentsbased on our plan to invest
approximately ¥4 trillion over theseven-year period beginning withthe year ended March 31, 2011, so
as to reach our goal of net production
volume of 800,000–1 million boed by
2020. During the year ended March
31, 2011, we invested more than ¥240
billion in exploration and development,
etc. During the three-year period
beginning from the year ending
March 31, 2012, we plan to invest
approximately ¥1.8 trillion or less.
A solid ﬁnancial strategy is vitalto the steady investment of such alarge sum. Taking into consideration
our company’s target indicators forﬁnancial soundness (an equity ratioof 50% or more and a net debt to net
total capital employed ratio of 20% orless), the following items are assumed
as funding sources for the planned
investment of approximately ¥4 trillion:

1. Public offering
2. Cash or future operating
cash ﬂow
3. Bank loans,including project ﬁnancing

The capital increase through apublic offering has provided support
for our sound ﬁnancial condition, andwe foresee being able to maintainthis sound ﬁnancial condition until
2017, which we believe will be theyear in which our net debt associatedwith increased bank loans peaks. We
believe this puts us in a favorable
position to proceed with futureﬁnancing procurement.
Although the public offering
diluted our shares, we expect to double
our current net production volume by2020 by commercializing projects suchas Ichthys and Abadi. We therefore
foresee earnings that will surpass theeffects of the share dilution.

34p.
for more about our Investment
Plans and Financial Strategies

To invest approximately ¥4 trillion
steadily over the seven-year period
beginning with the year ended March31, 2011, we increased capital througha public offering in August 2010.

We have already conducted a public
offering in August 2010 that raised
approximately ¥520 billion. As a result,
our ﬁnancial condition at the end ofMarch 2011 was unquestionably soundcompared to the other main upstream
independents. (As of March 31, 2011,
our equity ratio was 74.5% with a net
debt to net total capital employed ratioof –48.9%.)

INPEX CORPORATION Annual Report 2011023

Cash dividends per share,
Payout ratio■Cash dividends per share

Payout ratio10,000 (Yen)

8,000(%) 25

8,000

20

6,000

6,000

15

5,500
14.7
4,000

13.0

10

12.1

2,000

5002009024

2010

2011

INPEX CORPORATION Annual Report 2011

I would like to close by thanking ourshareholders and all other stakeholders
for support and understanding.

Sincerely,

Toshiaki Kitamura
President & CEO

July 2011

Business Overview
2.1

Proﬁle and History

026

2.2

Oil and Natural Gas Business

028

2.3

Market Environment and Forecasts

030

2.4

Strengths and Strategies

032

2.5

Investment Plans and Financial Strategies

034

Performance / Message
Business Overview

15%, but we are currently at a stage
where we are allocating our retained
earnings toward attaining our mediumterm targets, so we are not setting a
numerical target for a performancebased payout ratio. I believe that once
our growth pace reaches cruising
speed through the commercializationof the Ichthys and Abadi projects wewill review our policy on returns toshareholders.
We expect the year ending
March 31, 2012, to be a period ofgreat progress toward reaching ourfuture growth targets including theIchthys Project where FID is planned.
As President, I pledge to lead thecompany ﬁrmly and steadily so as torealize our projects and achieve ourgrowth targets, which will enhance ourcorporate and shareholder value.

Project Overview

We are aware of our social
responsibility to provide a stable and
efﬁcient supply of energy, and as a
global independent upstream company
we strive to take coexistence with andthe development of the international
community into consideration inconducting our business. We are awarethat our presence as a global upstream
company is not enough, so we believe
it is necessary to strive to engage inmeaningful communication with all ofour stakeholders so as to inform themof our company’s growth potential andthe progress of our projects in waysthat are easy to understand, so as tobe properly appreciated as a company.
Fortunately, I had many opportunities
in the past year to exchange opinionswith our stakeholders including
shareholders through our IR andother activities. The expectations andserious suggestions received from ourshareholders made me re-acknowledge
my desire to lead our company ﬁrmly
and steadily as President of INPEX. In
the current year as well, I encourage
our stakeholders to voice opinions
directly at our General Shareholders’Meeting or through our IR activities.
It is my hope that we can increase ourmutual communications.
We paid a dividend of ¥6,000 per
share during the year ended March 31,
2011 (full year), a year-on-year increaseof ¥500, so as to return proﬁts to ourshareholders. For the past severalyears, our payout ratio has been 10%–2

Geological survey

Corporate Responsibility
and Management

I shall continue to lead INPEX ﬁrmly
and steadily, keeping in mind theexpectations and stern guidance of ourstakeholders as we pursue further growth
as a global company.

Financial /Corporate Information

6. Message to Our Stakeholders