Business Model and Strengths
In its oil and gas development business, INPEX
employs a business model that focuses on stableproduction and supply, as well as the reinvestmentof cash ﬂows obtained from production activities
toward the acquisition of new reserves and the discovery 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/Abadi

INPEX is in the process of developing twoof the world's large-scale LNG projects atIchthys in Australia and Abadi in Indonesia. We are the ﬁrst Japanese company todevelop such large-scale projects as anoperator. The Company’s net production
volume is currently at the level of 400-500
thousand boed, and there are prospectsof an increase to 600-700 thousand boedfollowing the start of production at Ichthysand other projects. We are focusing on Ichthys development work, which will increase
the corporate value of our company.

INPEX’s Strength 2

A Balanced Portfolio andStrong Reserve
Volume/Resources

4.04 billion boe(Proved and probable reserves)

INPEX has secured a balanced portfoliowhile 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 and production activities. Turning to the Company's reserve
volume, the source of its corporate value,
INPEX holds a proved and probablereserve volume of 4.04 billion boe as wellas an abundance of possible reserves andcontingent resources that are not included
in probable reserves. Looking ahead, we
expect to expand proved and probablereserves over the medium to long term.

010

INPEX CORPORATION Annual Report 2015

Growth ofProduction
VolumeIncreasingReservesBusiMoINPEX’s Strength 3

Natural Gas
Supply Chain

Domestic natural gaspipeline network

1,400 km

Proactive
Exploration andDevelopment
Investment

3
Market Trend andManagement Policy

nessdelAccounting ofRevenue
Attributable toSalesINPEX owns a natural gas pipeline network in Japan of around 1,400 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 and overseas and thedomestic market. By receiving LNG fromthe large-scale Ichthys project and othersources, the Company will build a global
gas supply chain and plan further valueadded improvements.

INPEX’s Strength 4Strong Financial Base
Equity ratio:

68.2%

Net debt/Net total
capital employed:-16.8%

A healthy balance sheet and cash reserves
are essential for oil and gas E&P companies. This reﬂects both the high degreeof risk associated with E&P activities
and the need to have sufﬁcient funds on
hand to take advantage of major investment opportunities. INPEX has secured astrong ﬁnancial position. As of March 31,
2015, our company had an equity ratio of
68.2% and a ratio of net debt to net total
capital employed of –16.8%. (Cash andcash equivalents and public bonds weregreater than interest-bearing debts.)
Compared to the oil majors and otherglobal peers, this represents a soundlevel of ﬁnancial strength.

INPEX CORPORATION Annual Report 2015011

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

There are many methods forselling crude oil linked tospot prices (market prices
established one time pertransaction), the spot prices
themselves being mainly
decided based on crude oil,which has become the transaction benchmark. Representative crude oil spot prices arethose quoted 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, inmany cases sales of liquefied
natural gas (LNG) result fromlong-term sale and purchase
contracts concluded fromboth producers and buyers.

AcquisitionofBlocks

Sales

Production

The extracted oil andnatural gas are refined andprocessed. After separating
oil and removing impurities(e.g., carbon gas, hydrogen),
we ship natural gas that canbe used as a product.

Where do crude oil and natural gas come from?

LNG tanker

012

INPEX CORPORATION Annual Report 2015

Crude oil and natural gas are thought to originate from organic
matter, such as the remains of once-living organisms that accumulated at the bottom of seas and lakes, that was then subjected toextreme heat and pressure underground. Crude oil and natural
gas that have formed deep underground are lighter than thewater in the earth, allowing them to gradually rise to the surface
over a long period of time. If the crude oil and natural gas encounter highly dense geological formations on the way to the surface,
however, deposits form that become oil and gas ﬁelds.

75 projects

We collect extensive information on legal
system and country risks related to areasin which oil and natural gas are expected
to exist. We then apply and bid for mining
rights and/or exploration and development rights and enter into a contract for
exploration and development.

In addition to geological surveys, we utilize geophysicalsurveys conducted throughsatellite images and seismic
waves in order to assess thepotential subsurface accumulations of oil and naturalgas. Furthermore, we drill
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
digging into the ground.

Signing ceremony of a contract

Exploration

3
Market Trend andManagement Policy

in 25 countriesGeophysical surveys

AppraisalOnce the presence of oiland 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
make comprehensive judgments regarding the commercial viability of the ﬁelds.

Development

Drilling of appraisal wells

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

INPEX CORPORATION Annual Report 2015013

Business Environmentin Oil and Gas Development
The forecast is for further expansion of global primaryenergy demand, including oil and natural gas, to be centered on developing countries, such as China and India.
Of that demand, that for natural gas is expected to see asigniﬁcant increase. Due to the mature nature of exploration and development, as well as such factors as risingresource nationalism, however, the scope of potential oil
and natural gas development will continue to be biased
toward frontier regions where development is besetwith difﬁculties.

Natural gas

Europe/Eurasia

97.0
billion cf/dNatural gas
production
volume10 billion cf/d

Crude oil17.20 MMbbl/d
Crude oilproduction volume
1 MMbbl/dNatural gas

58.1
billioncf/d

Middle East
Crude oil28.56 MMbbl/dAfricaCrude oil8.26
MMbbl/dAsia/PacificNatural gas

Crude oil

51.4
billion cf/d

8.32
MMbbl/dNatural gas

19.6 billion
cf/dRepresentation of main oil and natural gas production areas

Global Proved Reserves and Reserves-to-Production Ratio
Global proved reserves of crude
oil and natural gas total approximately 1.7 trillion barrels and 6.6
quadrillion cubic feet, respectively. By region, the Middle Eastholds the largest reserve volumesof both crude oil and natural gas
in existence. There are also extensive proved reserves of crude oilin South and Central America andNorth America and of natural gas
in Europe and Eurasia.

Proved Reserves by Region and Reserves-to-Production Ratio (PR ratio) (As of December 31, 2014)
Africa 7.6%

Asia/Pacific 2.5%

6.5%

Europe/Eurasia

Africa9.1%

NorthAmerica

13.7%

7.6%

Crude oil

1,700.1
billion bbl

South andCentral America

19.4%

South andCentralAmerica

North America

PR ratio

52.5 years

Middle
East

47.7%

Asia/
Pacific

8.2%

4.1%
Natural gas

6,606.4
trillion cf

Europe/Eurasia

31.0%

MiddleEast

42.7%

PR ratio

54.1 years
Source: BP Statistical Review of World Energy 2015014

INPEX CORPORATION Annual Report 2015

Oil and Natural Gas Demand in JapanLNG Import Trend in Japan(Million tons/year)100

2014: 88.51 million tons

Crude oil

80

18.72
MMbbl/d60

Natural gas

91.8 billion
cf/d402001995

2000

2005

North America

2010

Demand for LNG is increasing in Japan. This reﬂects the upswing in
LNG use for thermal power generation in the wake of the shutdownsof nuclear power plants.
Trade Statistics of Ministry of FinanceJapan’s Primary Energy Supply (2013)
Hydroelectricity3.3%
Nuclear power 0.4%

Renewables, etc. 2.1%

3

Coal 24.7%

Market Trend andManagement Policy

Oil

Natural gas

22.9%

46.6%

Oil that is broadly used as a source of heat and power, as well as in
the production of materials, even now accounts for more than 40% ofJapan’s primary energy demand.

South andCentral America

Source: Energy & Economic Statistics in Japan 2015

Production Volume by Region
There are many countries and regions that produce oil and natural gas,
but countries that have large-scale production, have opened their mining
areas to foreign oil companies or are capable of exporting LNG are limited
to just a few. Due to the rise in resource nationalism, the securing of new oiland natural gas interests by energy development companies has in recent
years continued to be biased toward frontier regions where development
is beset with difﬁculties. Among these regions, however, are promisingareas where large-scale reserve volumes are to be expected.

Natural gas

Crude oil7.61
MMbbl/d16.9 billion
cf/dProduction volume source: BP Statistical Review of World Energy 2015

Global Energy Demand
Oil and natural gas account for
more than half of the amount of
global primary energy consumption. The main focus is on otherforms of energy, such as solar,hydro, biomass and geothermal,
as these are renewable within ashort time of ﬁrst use and emit
less CO2 during power generation when compared to ﬁnite fossil fuels.

World Primary Energy Consumption (2014)
Hydroelectricity 6.8%
Nuclear
power

Coal

2.5%

Oil

32.6%
Total

Natural gas
Biomass

Nuclear power
Other renewable energy(Million toe)
5,000
4,000
3,000

12.93

Natural gas to grow

1.6% annually

2,000

billion toe

30.0%

Oil

Hydroelectricity

Renewables

4.4%

Coal

World Primary Energy Demand by Fuel

Naturalgas

23.7%
Source: BP Statistical Review of World Energy 2015

1,00002012

2020

2040

Source: IEA World Energy Outlook 2014 in the New Policies Scenario

INPEX CORPORATION Annual Report 2015015

The Medium- to Long-Term Vision ofINPEX and Investment Plans
In May 2012, the Company formulated the INPEX Medium- to Long-Term Vision thatclariﬁed such aspects as key initiatives up to the ﬁscal year ending March 2017 towardmedium- to long-term growth targets and the achievement of those targets. The
Medium- to Long-Term Vision deﬁned three growth targets and three management
policies and clearly speciﬁed the key initiatives over the following ﬁve-year period.

ThreeGrowth Targets
We have set three growth targets necessary for sustainablegrowth and will conduct key
initiatives over the next ﬁve
years to achieve them.

1
2
3

Continuous
Enhancement of
E&P Activities

Strengthening
Gas Supply
Chain

Achieve net production volume of

1 million boedby the early 2020s

Achieve domestic gas supply volume of3

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

Promote efforts to commercialize
Reinforcement of renewable energies and reinforce
RenewableEnergy Initiatives R&D activities
for the next generation

We are positioning ourselves to become a top-classinternational oil and gas E&P company and are
improving and building our management base toevolve into an integrated energy company.

1Investment

INPEX CORPORATION Annual Report 2015

Dividend Payout Ratio
33.8%

30

20

14.7%

Recruit and utilize personnel in and outside ofJapan to develop global professionals.

016

From the period in which Ichthys starts
production, we will be aware of ourposition as a top-class international oiland gas E&P company and will planappropriate returns for our shareholders.
(%)
40

Securing/Developing
Human Resources andBuilding an Efﬁcient
Organizational Structure

Establish an efﬁcient business execution
system to facilitate decision making.

2

Investment for Growth andReturn for Shareholders

ThreeManagement Policies

13.2%

14.0%

2012/3

2013/3

10
From the year ended March 31, 2013,
to March 31, 2017

14.3%

0

2011/3

2014/3

2015/3

Proved Reserves, Net Production Volume and the Market Valueof the Major International Oil and Gas E&P Players

800

To achieve 1 MMboed of net
production by the early 2020s
through medium- to long-term
investment

Anadarko (US)Apache (US)600

408 thousand boed

Net production volume (Thousand boed)

1,000

400200

Talisman (CA)INPEX

Santos (AU)
Woodside (AU)

00.5

1.0

1.5

Proved reserves: 2.43 billion boe

BG (UK)

Occidental (US)Probable reserves to
upgrade to proved
through the shift ofdevelopment

Seeking to establish afirm position as an international
oil and gas E&P company
by the early 2020s
2.0

2.5

3.0

3.5

4.0

Probable reserves: 1.61 billion boe

Proved and probable reserves (Billion boe)

Proved reserves and production volume indicated in this chart are from documents disclosed by the major E&P companies inﬁscal 2014. The size of the circle shows the market value of each company as of March 31, 2015. Currently, INPEX is positioned
as a mid-tier E&P player. As our operations expand through new milestones including the start of production at the Ichthys LNG
Project in Australia, we will endeavor to secure a foothold among the world’s oil majors by the early 2020s. A comparison between
the proved reserves, net production volume and market value of the major international oil and gas E&P players is presented inthe above diagram.

Becomean Integrated
Energy Company
with naturalgas as the core

Market Trend andManagement Policy

Becomea Top-ClassInternational
Oil and Gas
E&P Company

3

MEDIUM- TO LONG-TERM VISION OF INPEX:

Ichthys and Our Growth Beyond

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

Maintain FinancialStrength

Funding Source
Own funds
Approximately ¥1.2 trillionof cash available on hand
(As of March 31, 2015)

Cash flows
Future operating cash ﬂows
obtained each year

Bank loans

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.

■ Lending from JBIC
■ Guarantee from JOGMEC■ Project ﬁnance

INPEX CORPORATION Annual Report 2015017