A Firm Foundation

INPEX Holdings Inc.
Annual Report 2006

1

INPEX Holdings Inc.

INPEX CORPORATION and Teikoku Oil Co., Ltd.
made a new start as INPEX Holdings Inc.
on April 3, 2006.

Contents
Profile & Financial Highlights ..............................

2

An Interview with the President ...........................

4

Worldwide Exploration & Production Activities ........ 10
Indonesia ..................................................... 12
Australia & JPDA........................................... 16
Caspian Sea Area .......................................... 19
Middle East .................................................. 22
Latin America ............................................... 24
Africa........................................................... 27
Japan........................................................... 30
Corporate Governance ....................................... 32
Mission, Corporate Social Responsibility Policy &Health, Safety and Environment Policy .............. 34
Management Team ............................................ 36
Financial Section............................................... 37
INPEX CORPORATION...................................... 37
Teikoku Oil ................................................... 69
Operating Data & Corporate Information............ 99
Corporate Data & Stock Information .....................109

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 expressedor implied by such forward-looking information. Such risks anduncertainties 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.
The Company undertakes no obligation to publicly update or revise any
information in this annual report (including forward-looking information).

Proved Reserves

INPEX Holdings Inc.

Compound Annual Growth Rate
We are currently producing 380 Mboed*, and expect
approximately 500 Mboed in the fiscal year ending
March 31, 2011, with a high CAGR of 5.5%.

With business operations covering 72 projects in 24
countries, we boast a balanced portfolio in terms of activity
area, type of contracts, operating stages and the
proportion of crude oil to natural gas.

Reserve Replacement Ratio (RRR)
With our success in exploration, development and asset acquisition,
our three-year average RRR, indicating the increase of proved
reserves, stood at a lofty 417%, an excellent result in comparison
with other oil companies.

We have the largest proved reserves among Japanese companies,
and our net probable reserves amount to 1,881 MMboe**, exceeding
our net proved reserves. The reserve-production ratio for the proved
reserves equates to 12.8 years, or 26.4 years when adding probablereserves. From this, we expect steady increases of production volume
and proved reserves over the medium- to long-term.

* Mboed:thousands of barrels of oil equivalent per day** MMboe:millions of barrels of oil equivalent3

2

INPEX Holdings Inc.

ProfileINPEX CORPORATION is a leading Japanese
E&P company, the largest in Japan in terms of
production and reserve volume. Since its
establishment in 1966, INPEX CORPORATION
has been steadily developing business overseas
for 40 years. Consequently, it possesses highly
profitable oil and gas assets in Indonesia,
Oceania, the Caspian Sea and the Middle East,and has made considerable achievements on
par with mid-size international oil companies.

INPEX CORPORATIONTEIKOKU OIL
Teikoku Oil Co., Ltd. is a Japanese pioneer of
E&P, having been involved in energy resource
development at home and overseas for 65 years
since its foundation in 1941. Teikoku Oil supplies
natural gas from its Minami - Nagaoka Gas Field,
which has Japan’s largest gas reserves, throughits gas pipeline network to the vast natural gas
market of the Kanto region surrounding theTokyo metropolitan area. Overseas, Teikoku Oil
has been successful in the development of oil
and gas fields in Latin America and Africa.

Financial Highlights

INPEX CORPORATIONINPEX CORPORATION and Subsidiaries
For the fiscal years ended March 31, 2003, 2004, 2005 and 2006

Years ended March 31,

Net sales

Millions of yen

Thousands of
U.S. dollars (3)

2003

2004

2005

2006

2006

¥ 201,533¥ 218,831¥ 478,587¥ 704,235$5,995,020

Operating income

97,27093,876

268,663426,651

3,632,000

Net income

27,912

34,782

76,494103,477

880,880

Cash flows from operating activities

51,282

44,464

131,207

218,240

1,857,836

Total assets (at period end)

338,747

525,298

779,228

972,438

8,278,182

Long-term debt (at period end)

46,865

169,307

175,604

206,537

1,758,211

Net debt (at period end)(1)(109,691)

42,297(52,482)(89,097)(758,466)

Shareholders’ equity (at period end)

253,570

278,114411,296504,998

4,298,953

Yen

U.S. dollars

Net income per share¥47,178.51¥58,838.76

Net income per share (2)¥40,255.92¥53,814.47$

458.11

15,726.17

19,612.92———

Cash dividends per share

10,00010,000

4,000

5,500

46.82

Cash dividends per share (2)

3,333

3,333

—

—

—

Millions of yen

Thousands of
U.S. dollars (4)Teikoku Oil Co., Ltd.
Teikoku Oil Co., Ltd. and Consolidated Subsidiaries
For the fiscal years ended December 31, 2002, 2003, 2004 and 2005

Years ended December 31,

Net sales

2002

2003

2004

2005

2005

¥ 73,630¥ 78,498¥ 84,032¥ 100,716$ 853,525

7,296

8,739

13,53321,077

178,619
131,229

Operating income
Net income

5,233

6,796

9,276

15,485

Cash flows from operating activities

15,004

19,955

19,225

15,118128,119

Total assets (at period end)

203,986

226,280

240,513

293,7672,489,551

Long-term debt (at period end)

21,002

17,154

13,52923,847

202,093

Net debt (at period end)
Shareholders’ equity (at period end)

Net income per share
Cash dividends per share¥(3,122)(8,267)(8,828)(2,019)(17,110)

135,911

156,463

165,936

197,216

1,671,322

Yen

U.S. dollars

17.11
6.0

¥

22.09
6.0

¥

30.22
7.5

¥

50.61
9.0

$

0.43
0.08

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 translation of yen amounts into U.S. dollar amounts have been made at the rate of ¥117.47 = U.S.$1.00, the approximate exchange rate on
March 31, 2006.
(4) The translation of yen amounts into U.S. dollar amounts have been made at the rate of ¥118 = U.S.$1.00, the approximate exchange rate on
December 31, 2005.

4

INPEX Holdings Inc.

An Interview
with the President
On November 5, 2005, INPEX CORPORATION and Teikoku Oil Co., Ltd.
entered into a joint stock transfer agreement and decided to implement
management integration. With these two companies as its wholly owned
subsidiaries, the joint holding company INPEX Holdings Inc. was establishedon April 3, 2006.
President Kuroda explains the purpose of this integration and theCompany’s future vision.

Naoki Kuroda
President

INPEX Holdings Inc.

+Q

+A

Please tell us about the background

Against the backdrop of global economic growth led by the United Statesof the business integration

and China, demand for oil and natural gas has been rapidly increasing in

between INPEX CORPORATION
and Teikoku Oil Co., Ltd.

recent years. On the other hand, prices of oil and natural gas are hovering
at high levels, reflecting the historical restraint of development investment
and the unstable situation in the Middle East. While competition for
acquiring resources has become more intense than ever, countries such as
China and India are striving to secure upstream assets in the Middle East,
Africa and Latin America, and major oil companies are strengthening
competitiveness through mergers and acquisitions.
As both INPEX CORPORATION and Teikoku Oil target enhanced
corporate value through acquisitions of overseas upstream assets, theimmediate establishment of an operational foundation with global competitiveness is crucial in order to ensure sustainable growth in such acompetitive global environment. Based on this recognition, INPEXCORPORATION and Teikoku Oil decided to integrate the two companies
in order to build a firm position in the global market, by establishing adiversified asset portfolio, reinforcing a solid financial base, concentrating technological capabilities for resource development, and acquiring
interests in promising projects.

+Q+A

Please tell us about the expected
effects of this integration.

We expect three effects from this business integration. First, our asset
portfolio will become more balanced as there is no overlap between theportfolios of INPEX CORPORATION and Teikoku Oil. INPEX CORPORATION has operated primarily in Asia and Oceania, the Middle East andCaspian Sea regions, while Teikoku Oil has developed its business mainly
in Japan, Latin America and Africa. Therefore, the upstream assets ofeach company are highly complementary, and will bring expansion in
operating areas and diversify country risk and foreign exchange risk. In
addition, the integration will lead to reduction in business risks by a diversified
combination of projects with differing risk profiles such as exploration, development and service operations.

56

INPEX Holdings Inc.

The second effect is a strengthened presence as a global company.
The combined total oil and gas reserves of the two companies totaled
1,775 million barrels of oil equivalent in proved reserves as of March 31,
2006. Net production volume, which is our net economic take, wasapproximately 380 thousand barrels of oil equivalent per day. We will be
the only company in Japan that can rival mid-size international oil companies in terms of reserves and production volume.
Finally, we expect to enhance our capability and management knowhow as an operator. We believe that we will greatly expand technical andoperational capabilities for projects as an upstream company by managing
domestic and overseas operator projects, as well as integrating advanced,
practical technical capabilities with ample experience in evaluating andacquiring promising overseas assets. As a result of integration, the newcompany will have a technical staff of 700. In addition, we will have theadvantage of effectively utilizing and strengthening such operator
capabilities and know-how as well as the technical research center tosupport operating activities. The expanded operator capabilities will be astronger driving force for implementing our large-scale projects such as
Ichthys in Australia and Abadi in Indonesia.

+Q+A

Based on these effects from
integration, what are the management
goals in the medium term?

The basic strategy for our business is to secure oil and gas reserves to assure
stable income and sustainable growth of corporate value through development, production and sales activities.
Considering that reserves decline as we produce oil and gas, it isindispensable to make new discoveries by exploration activities or toacquire additional reserves by asset purchases in the medium and longterms. We need to aggressively develop business to acquire promising
opportunities for assuring working interests for exploration, development
and production in highly potential oil and gas fields.
Through this business integration, we will become a leading Japaneseoil company that can be favorably compared to global oil companies
around the world in terms of a balanced asset portfolio, a strong presence
as a powerful global company, and high technical capabilities and management know-how as an operator.

INPEX Holdings Inc.

Taking full advantage of this integration, we will strive for early commercial production from discovered large-scale oil and gas fields byenhanced investment for aggressive acquisition of promising oil and gas
fields. Through these measures, we are aiming to boost our production
volume to the level of a top global independent oil company by the late
2010s. We will make every effort to develop our business in pursuit offurther enhancement of corporate value in the medium and long terms.

Strengthening International Competitiveness through Integration

Balanced Asset Portfolio

Strengthened Presence• Expanded reserves andproduction volume• Overseas oil and gas assets• Domestic natural gas assets• Domestic gas pipeline network• Strengthened financial baseEnhanced Capability as an Operator• Consolidation of technical capabilities
including human resources andknow-how, etc.
Production
equivalent to top
independents

Enhancement of operating activities creating further growth

Continuous gr

Production:
496,000 BOE/D

ow th• Maintenance and reinforcement of natural gas
production in the Offshore Mahakam Block, Indonesia• Early commercialization of large-scale discovered
assets such as Ichthys and Abadi• Steady promotion of ongoing projects• Acquisition of high-potential exploration areasand promising oil and gas assets• Scale expansion of the domestic natural gas business• Expansion of operating area

Year ending
March 31, 2011

Years ending March 31,
2016 – 2021

+Q

+A

The Ichthys Project in Australia isdrawing attention as a Japanesecompany-operated large-scale gas
field development project. Pleasetell us the project outline and its
development plan.

In 1998, we won an open bid for and acquired a working interest in the
WA-285-P, approximately 200 kilometers offshore of Western Australia.
Pursuing exploration activities as an operator, we discovered an exceptionally promising gas and condensate structure, and named it “Ichthys.”
A total of six exploration wells have been drilled in this field, and all
have resulted in the discovery of natural gas and condensate. In view ofthis, we anticipate ample reserves to realize a large-scale development
project. We plan to process the natural gas produced in this field and sell it
as liquefied natural gas (LNG). Initial LNG production is scheduled to beapproximately six million tons annually. In addition to LNG production,
approximately 100,000 barrels per day of condensate and LPG will be
produced at the peak rate.

7

8

INPEX Holdings Inc.

We are vigorously engaging in development studies such as engineering work, field date collections, environmental impact assessment, as wellas marketing activities in an effort to commence production from mid
2012. In August 2006, we agreed to transfer a portion of our interest in thisproject to TOTAL, a French oil company. With development technologies
and expertise from taking part in a number of LNG projects worldwide, theparticipation of TOTAL is considered to be a major contribution to thedevelopment of Ichthys and the stable production and supply of LNG.
This is a first milestone project conducted by a Japanese business enterprise from the development of gas field through production and sale of LNG
as an operator. We will make maximum utilization of our enhanced capability as an operator and promote this large-scale LNG project.

+Q+A

Please tell us about the process
and schedule for the two companies
to complete integration.

The management integration schedule is based on the terms of agreement reached in November 2005. The two companies gained approval
from their shareholders at extraordinary shareholders’ meetings held on
January 31, 2006. To this end, the two companies proceeded with theestablishment of a joint-holding company as the first phase, and will
implement the second phase of fully integrating management under theoperating holding company.
The first phase was completed in April 2006 with the establishment ofa joint-holding company, INPEX Holdings Inc., through a stock transfer.

2005

INPEX

Phase 1 (2006)

Phase 2 (2008)

Holding Company (INPEX Holdings Inc.)

Teikoku
Stock transfer

Operating Holding Company
MergerINPEXOverseas
Operations

Overseas
Operations

Domestic
Operations

INPEX

Overseas
Operations

Teikoku

Teikoku

Overseas
Operations

Domestic
Operations

Further reorganization to realize growth strategy

Overseas
Operations

Domestic
Operations

New
Operations

INPEX Holdings Inc.

One share of the joint-holding company’s common shares were allotted in
exchange for one share of INPEX CORPORATION’s common shares, and
0.00144 of a share was allotted in exchange for one share of Teikoku Oil’s
common shares. Both INPEX CORPORATION and Teikoku Oil weredelisted on March 28, 2006, and the joint-holding company was listed on
the First Section of the Tokyo Stock Exchange on April 3, 2006.
At the present stage, the two companies remain independent, butlinked by 100% investments from the joint-holding company.
Nevertheless, we are facilitating mutual understanding and intelligencesharing on both managerial and working levels through management andtechnical committees. Furthermore, we are taking initiatives to harmonize
the two companies’ basic management policies and enhance management power to increase the new holding company’s corporate value bycapitalizing on the two companies’ strengths. We are continuing withmeasures to take full advantage of the integration by streamlining organization, personnel exchanges, adjustment and planning of strategies in aneffort to complete the second phase of the integration in two years. At thatstage, the joint-holding company will become an operating holding company, making the two companies completely integrated.

+Q+A

What message do you have forshareholders?

The INPEX Holdings Group aims to become a comprehensive energy
company that can contribute to the development of the Japanese economy and the creation of an affluent society through the stable and efficient
supply of core energy. Together with this, we will strive for the assuranceof reliable earnings in the medium and long terms, and sustainable growthof corporate value through the prompt realization of business integrationand steady implementation of each project.
Moreover, in order to promote corporate social responsibility, we willcontinue to improve our corporate governance and compliance structures,
taking all possible measures to ensure safety and security on the operational front, and give due consideration to the harmonious coexistencewith the environment and local communities.
We sincerely ask for your continuing support and understanding of the
new Group’s endeavors.

910 INPEX Holdings Inc.

Worldwide Exploration& Production Activities
Having no overlapping operating areas, the operations of INPEX CORPORATION and
Teikoku Oil Co., Ltd. are highly complementary.
INPEX CORPORATION possesses promising large-scale projects primarily in
Asia and Oceania, the Middle East and the Caspian Sea regions, while Teikoku Oil
undertakes stable business domestically as well as high-potential overseas operationsin Latin America and Africa.

PAGE

19

Caspian Sea Area
• Kazakhstan: Offshore North CaspianSea Block (Kashagan Oil Field and Others)• Azerbaijan: ACG Oil Fields• Azerbaijan-Georgia-Turkey: BTC Pipeline

PAGE

PAGE

27

Africa• Congo: Offshore Congo Block• Egypt: West Bakr Block• Algeria: El Ouar I and II Blocks• Algeria: Ohanet Block22

Middle East
• United Arab Emirates: ADMA Block• Iran: Azadegan Oil FieldINPEX Holdings Inc.

Net Production

Proved Reserves
Asia / Oceania 46%

Africa 3%

Middle East 47%

Africa 1%

Latin America 4%

Latin America 1%

Japan 5%

Caspian Sea Area 6%

Caspian Sea Area 7%

Japan 10%Middle East 35%

Asia / Oceania 35%

Total: 380 Mboed

Total: 1,775 MMboe

Projects described in this report
Our global E&P operations

PAGE

30

Japan
• Minami-Nagaoka Gas Field and Others

PAGE

12

Indonesia• Offshore Mahakam Block and Attaka Unit
• South Natuna Sea Block B• Masela Block (Abadi)• Berau Block, Tangguh LNG Project

PAGE

16

Australia & JPDA
• Australia: WA-10-L and Others• Australia: WA-285-P (Ichthys)• JPDA03-12, Bayu-Undan Project

PAGE

24

Latin America• Venezuela: East Guarico Unit and Sanvi-Guere Unit
• Brazil: Frade Block• Mexico: Cuervito Block and Fronterizo Block11

12 INPEX Holdings Inc.

Global Business Activities

Indonesia

South Natuna Sea Block B
Offshore Mahakam Block and Attaka Unit
Masela Block (Abadi)
Berau Block, Tangguh LNG Project

+2
+1

+4
+3

INPEX Holdings Inc.

+1

Offshore Mahakam Block and Attaka Unit
Contract Area

Venture Company (est.)

Interest Owned

Offshore Mahakam

INPEX CORPORATION(February 21, 1966)

INPEX CORPORATION 50%*TOTAL 50%

Attaka Unit

In October 1966, INPEX CORPORATION

condensate are shipped by tanker fromcontract (PSC) with the Indonesian

the Santan and Senipah terminals

government and acquired a 100%

mainly to petroleum refineries andworking interest in the Offshore

power companies in Japan. Natural gas

Nubi Field

Mahakam Block. The Attaka Unit was

is mainly transported to the Bontang

Bekapai Field

established in April 1970, with Unocal

LNG Plants, one of the largest facilities(now Chevron) holding an equal inter-of its kind in the world, and shipped to

est of 50%. Soon after this, the Attaka

Japan and other countries.

Attaka Unit

Santan Terminal

Attaka Field

Badak Field
Tunu Field

Tambora Field
Handil Field
Senipah Terminal

Sisi Field

Peciko Field
Balikpapan

Offshore Mahakam BlockGas field
Oil field
Oil and Gas field

Once produced, crude oil andentered into a production sharing

Bontang LNG Plants

Nilam Field

INPEX CORPORATION 50%*Chevron 50%*Operator

Field was discovered and the produc-

The PSC was extended 20 years

tion of crude oil and natural gas com-through 2017, making the Mahakam

menced in 1972. INPEX farmed out

Block continue to play as the profit

50% of its working interest in thecenter for the Group’s business.

Offshore Mahakam Block to TOTAL in
July 1970. This venture resulted in the
successive discoveries of the Bekapai,
Handil, Tambora, Tunu and Peciko
Fields, all of which continue to produce
crude oil and natural gas.

13

14 INPEX Holdings Inc.

+2

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%
Chevron 25%*Operator

Natuna Sea
North Belut

South Natuna Sea Block B
BelidaKerisiIn July 1977, INPEX CORPORATION

markets. This pipeline commenced

acquired 17.5% working interest in the

supply in 2001, and the following year

South Natuna Sea Block B, which

saw new gas sales to Malaysia from

includes the discovered Udang Oil

Block B. Owing to these achievements,

Field. In January 1994, INPEX

the PSC for Block B was extended

acquired additional interest in thethrough 2028.

Block for a total of 35%.
Hiu
Sembilang Belanak

Gas field
Oil field
Oil and Gas field

Subsequent to INPEX participation,
Natuna Island

In December 2004, crude oil andcondensate production began at theseveral new fields were discovered in

Belanak Field through a floating pro-Block B, including the Hiu, Ikan Pari,

duction, storage and offloading system

North Belut, Belida, Sembilang, and(FPSO), one of the largest vessels in

Kerisi Fields, contributing to crude oil

the world. INPEX continues to engage

production that has continued sincein preliminary work including market-

1979. In January 1999, a sales agree-

ing to prepare for LPG production. In

ment was concluded to deliver gas toaddition, INPEX is scheduled to com-

Singapore from Block B, the neighbor-mence production from the Hiu Field

ing Natuna Sea Block A and Kakap

in 2006, the Kerisi Field in 2007, andBlock, through the first Indonesian

the North Belut Field in 2009.

subsea pipeline connecting foreign

INPEX Holdings Inc.

+3

Masela Block (Abadi)
Contract Area

Venture Company (est.)

Interest Owned

MaselaINPEX Masela,Ltd.
(December 2, 1998)*INPEX Masela 100%

*Operator

Masela Block

INDONESIA

AUSTRALIA

Timor Sea Joint
Petroleum
Development Area

+4

Timor Sea

In November 1998, INPEX CORPORA-of the Abadi structure, further raising

TION won an open bid for andexpectations for a substantial volume ofacquired a 100% working interest ingas and condensate reserves.
INPEX will evaluate the reserves by

the Masela Block. Pursuing exploration
activities as an operator, INPEX discov-

drilling four additional appraisal wells

ered the large-scale gas structure,from the end of 2006. Simultaneously,

Abadi, by the first exploration well

INPEX is devoting itself to development

drilled in the Block in 2000. This

studies for future commercialization byrepresented the first discovery of

producing LNG as well as new tech-natural gas in the Indonesian Timor

nologies including GTL (gas to liquid)

Sea. Subsequently, two appraisal wells

and DME (dimethyl ether, equivalent todrilled in 2002 confirmed the expanse

LPG).

Berau Block, Tangguh LNG ProjectContract Area

Venture Company (est.)

Interest Owned

Berau

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

Ml Berau B.V. 22.856% *BP 48%
Nippon Oil Exploration (Berau) 17.144%
KG Breau 12.0%

Tangguh Unit

MI Berau 16.3% *BP 37.16%
CNOOC 16.96%
Nippon Oil Exploration (Berau) 12.23%
KG Berau 10.00% LNG Japan 7.35%*Operator

Papua Province (INDONESIA)

Kaimana

Berau BlockGas field

In October 2001, MI Berau B.V., a joint

supply of 7.6 million tons of LNG toventure established by INPEX CORPO-

China, South Korea and North America

RATION and Mitsubishi Corporation,

annually. In March 2005, theacquired approximately 22.9% interest

Indonesian government approved thein the Berau Block, a hub in thedevelopment plan for the Tangguh LNG

Tangguh LNG Project. MI Berau holds

Project and extension of the PSC

a 16.3% working interest in thethrough 2035. Partners of the Project

Tangguh Unit, an unitized area

are preparing for the drilling of produc-

between the Berau Block, the adjoining

tion wells and constructing LNG plants

Wiriagar Block and the Muturi Block.

with production to come on stream at

Long-term sales agreements havebeen concluded, stipulating a total

the end of 2008.

15

16 INPEX Holdings Inc.

Australia & JPDA

WA-10-L and Others
WA-285-P (Ichthys)
JPDA03-12, Bayu-Undan Project

+3
+2
+1

INPEX Holdings Inc.

+1

WA-10-L and Others
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 1)

INPEX Alpha 28.5% *BHPBP 39.999%
Apache 31.501%

WA-155-P (Part 2)

INPEX Alpha 18.67% *Apache 81.33%

WA-12-L (Deep)

INPEX Alpha 18.67%*ExxonMobil 81.33%*Operator

BarrowIslandIndian Ocean

WA-10-L
GriffinWA-12-L

WA-155-P (Part II)

In February 1989, INPEX CORPORA-

Griffin Venture, and is transported for

TION acquired a 20% working interest

sale through a 70-kilometer subsea

in the WA-210-P in offshore Western

pipeline connecting to the onshore

Australia. As a result of subsequent

trunk pipeline.
In the surrounding area of WA-10-L,

exploration activities, the Griffin fields
WA-155-P (Part I)

Onslow

were discovered and a production

INPEX acquired working interests inlicense for four blocks in WA-10-L was

the WA-155-P (Part II) and WA-12-L

granted by the Australian government.

(deep) in July 1994, and in theCommercial production from these

WA-155-P (Part I) in July 1999. The

blocks commenced in January 1994.

Van Gogh-Vincent and Ravensworth

The produced crude oil is processed

Fields were discovered in the WA-

and stored at the Griffin Venture, an

155-P (Part I), and accordingly,

FPSO vessel, and then shipped for sale.

feasibility studies for commercial

AUSTRALIA

Oil field

Natural gas is also processed at the+2development are currently under way.

WA-285-P (Ichthys)
Contract Area

Venture Company (est.)

Interest Owned

WA-285-P

INPEX Browse, Ltd.
(September 1, 1998)*INPEX Browse 76%
TOTAL 24%
*Operator

EAST TIMOR

Timor Sea

WA-285-P
DarwinAfter winning the open bid in August

INPEX is vigorously engaging in

1998, INPEX CORPORATION acquired

feasibility studies including engineering

a working interest in the WA-285-P inworks, field data collection and envi-

offshore Western Australia. Pursuingronmental impact assessment, as well

exploration activities as an operator,

as gas marketing for commercial

INPEX discovered the highly promisingproduction of LNG. As an initial stage,gas and condensate field, Ichthys, in

INPEX plans to produce and sell six

2000. All six exploratory wells thatmillion tons of LNG per year from mid

have successfully discovered natural

2012. In addition to LNG, 100,000

gas and condensate have demonstrat-

barrels per day of condensate and LPG

ed sufficient reserves for a large-scale

will be produced at the peak rate.

AUSTRALIA

gas and condensate project.

17

18 INPEX Holdings Inc.

+3

JPDA03-12, Bayu-Undan ProjectContract Area

Venture Company (est.)

Interest Owned

JPDA03-12

INPEX Sahul, Ltd.
(March 30, 1993)

INPEX Sahul 19.0712244%*ConocoPhillips 46.7144238%
Santos 19.2663518%
Petroz 14.948%

Bayu-Undan Unit

INPEX Sahul 10.527682%*ConocoPhillips 48.466865%
Eni 12.038906% Santos 10.635396%
Tokyo Timor Sea Resources(Tokyo Electric/Tokyo Gas) 10.079568%
Petroz 8.251583%*Operator

In April 1993, INPEX CORPORATION
East Timor

acquired a working interest in thewhich straddles both contract areas.
In the Bayu-Undan Project,

Timor Sea
Timor Sea Joint
Petroleum
Development Area
Bayu-Undan Gas-Condensate Field

JPDA03-12, located in the Timor Sea

production of condensate and LPG

Joint Petroleum Development Area

commenced in 2004. As for natural(JPDA).

gas production, LNG sales agreements

The exploration in the contract
Subsea Gas Pipeline
DarwinJPDA03-12 Block
AUSTRALIA

Gas field

stipulating a total supply of threearea resulted in the discovery of oil andmillion tons annually were concluded

gas in the Elang, Kakatua, Kakatuawith Tokyo Electric Power Co., Inc. andNorth, Bayu-Undan and Hingkip

Tokyo Gas Co., Ltd. in August 2005,

structures. Production began in Elangand commercial production of LNG

in July 1999 and in Kakatua andcommenced from February 2006.

Kakatua North in the following month.
In 1999, the Bayu-Undan Unit wasestablished between JPDA03-12 and
JPDA03-13 for the purpose of carryingout the development and production of
the Bayu-Undan gas-condensate field,

INPEX Holdings Inc.

Caspian Sea Area

BTC Pipeline
ACG Oil Fields
Offshore North Caspian Sea Block (Kashagan Oil Field and Others)

+1
+3

+2

19

20 INPEX Holdings Inc.

+1

Offshore North Caspian Sea Block(Kashagan Oil Field and Others)

KAZAKHSTAN

Kashagan

KairanCaspian Sea

Kashagan Southwest

AktoteOffshore North
Caspian Sea Block
Kalamkas+2

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%*Eni 18.52% ExxonMobil 18.52%
Shell 18.52%
TOTAL 18.52% ConocoPhillips 9.26%
KMG 8.33%*Operator

In September 1998, INPEX CORPORA-

field discoveries. The first phase of the

TION acquired a working interest ofdevelopment is currently under way withapproximately 7.14% in the Offshore

production to come on stream at theNorth Caspian Sea Block in the territorialend of 2008, and the production level iswaters of the Republic of Kazakhstan. In

expected to plateau at 1.2 million barrels

September 2001, INPEX acquired

per day in 2016. In addition to theadditional working interests, totaling

Kashagan Oil Field, hydrocarbon

approximately 8.33%.

reserves were confirmed in four other

The Kashagan Oil Field was discov-structures: the Kalamkas, Kashaganered by the first exploration well drilled inSouthwest, Aktote, and Kairan. INPEX

September 1999, representing the firstaims to increase production volume

discovery in the Kazakhstan-controlledfrom the Offshore North Caspian Sea

area of the Caspian Sea. The Kashagan

Block through appraisal work for these

Oil Field is considered to have great

discovered and undeveloped structurespotential to be one of the leading superalong with the development of the

giant oil fields in the history of global oil

Kashagan Oil Field.

ACG Oil Fields
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%
Chevron 10.28% SOCAR 10% Statoil 8.56%
ExxonMobil 8% TPAO 6.75% Devon Energy 5.63%
Itochu 3.92% Hess 2.72%*Operator

AZERBAIJAN

BakuSangachal

Oil Pipeline
Deep Water Gunashli Field
Chirag Field
Azeri Field
Caspian Sea

Oil field

ACG Fields

In April 2003, INPEX CORPORATION

the Deep Water Gunashli and Westacquired a 10% working interest in the

Chirag Fields, with the same goal for

Azeri-Chirag-Gunashli Fields, known as2008. All together, the project is

the ACG Oil Fields, located in the South

expected to increase production in

Caspian Sea area of the Republic ofstages, aiming to reach a peak pro-

Azerbaijan. Crude oil production began induction level of one million barrels per

1997 in the Chirag Field and the Central

day in 2009.

Azeri and West Azeri Fields commenced

The crude oil from these fields iscrude oil production in February andbeing transported to Supsa on the

December 2005, respectively.

Black Sea along a route running fromCurrently, INPEX is engaged in

Baku, Azerbaijan, as well as to Ceyhan,development work at the East Azeri

Turkey to the Mediterranean Sea via

Field, with the aim of starting produc-

the mainstay BTC Pipeline, whichtion in November 2006, as well as atcommenced operations in June 2006.

INPEX Holdings Inc.

+3

BTC Pipeline
Contract Area

Venture Company (est.)

Interest Owned

BTC Pipeline

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

INPEX BTC Pipeline 2.5%
*BP 30.1% SOCAR 25%
Chevron 8.9%
Statoil 8.71% TPAO 6.53%
Eni 5% TOTAL 5% Itochu 3.4%
ConocoPhillips 2.5% Hess 2.36%*Operator

In September 2002, INPEX CORPORARUSSIA

Black Sea

CaspianSea

GEORGIA
Tbilisi

BTC Pipeline

TURKEYIRAN

CeyhanCYPRUSSYRIATION acquired a 2.5% interest in theopment of the ACG Oil Fields in

BTC Pipeline Project.

Azerbaijan and the Kashagan Oil Field

The 1,770-kilometer BTC Pipeline,
AZERBAIJAN

ARMENIABaku

INPEX is participating in the devel-in Kazakhstan, both of which are

stretching from Baku, Azerbaijan toregarded as super giant oil fields in the

Ceyhan, Turkey, on the Mediterranean

world. The completion of the BTC

Sea, via Tbilisi, Georgia, with a trans-

Pipeline enables shipment by large-

port capacity of one million barrels per

scale vessels directly from theday, was constructed to transport

Mediterranean Sea, thereby avoiding

crude oil produced primarily from thethe Turkish straits, which are particu-

ACG Oil Fields in Azerbaijan. The BTC

larly congested by shipping traffic. This

Pipeline commenced full-fledged

represents a major contribution to theoperations in June 2006. The Ceyhantransport of the ever-growing produc-

marine terminal has seven one-million

tion of crude oil in Azerbaijan andbarrels-capacity crude oil storage tanks

Kazakhstan.

IRAQ
Mediterranean
Sea

and a two-kilometer jetty capable ofdocking two 300,000-ton-class tankers
at the same time.

21

22 INPEX Holdings Inc.

Middle East

+2
+1
ADMA Block
Azadegan Oil FieldINPEX Holdings Inc.

+1

ADMA Block

ADMA Block
Pipeline
Das Island

Umm Shaif Field
Upper Zakum/
Lower Zakum Field

Zirku Island

Satah Field

Umm Al-Dalkh Field
Abu Dhabi

UNITED ARAB EMIRATES

Contract Area

Venture Company (est.)

Interest Owned

Umm Shaif Field/Lower Zakum Field

Japan Oil Development Co., Ltd.
(February 22, 1973)

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

Upper Zakum Field

JODCO 12% ADNOC 60%
ExxonMobil 28%

Umm Al-Dalkh Field

JODCO 12% ADNOC 88%

Satah Field

JODCO 40% ADNOC 60%

In May 2004, INPEX CORPORATION

1987, respectively. These fields havemade Japan Oil Development Co., Ltd.

since maintained steady production.

(JODCO) a wholly owned subsidiary by

Crude oil production has also continued

acquiring all the shares held by theat two existing fields, the Umm Shaif

Japan National Oil Corporation throughand Lower Zakum, since 1962 anda share exchange. JODCO was estab-

1967, respectively. The crude oil islished in 1973 and currently producestransported by subsea pipeline to thecrude oil from five fields in the ADMA

islands of either Das or Zirku for ship-

Block, located in offshore Abu Dhabi,

ment.
These five fields are operated by

the United Arab Emirates. Production

Oil field

commenced in the Upper Zakum Field,

local operating venture companies,

the area’s largest oil field, in 1982, and

ADMA-OPCO and ZADCO. JODCOin the Umm Al-Dalkh and Satah Fields,

continuously sends a number of its

in which JODCO directly took part inpersonnel, primarily engineers, todevelopment operations, in 1985 andthose companies.

+2 Azadegan Oil Field
Contract Area

Venture Company (est.)

Interest Owned

Azadegan Oil Field

Azadegan Petroleum
Development, Ltd.
(February 18, 2004)*Azadegan Petroleum Development
75%
NICO 25%*Operator

TehranBaghdad

IRAQ

Azadegan Oil Field

Ahwaz

In February 2004, INPEX CORPORA-

from the field is scheduled to reach

TION entered into a service contract (a150,000 barrels per day in the firstso-called “buyback contract”) with thestage. In the optional second stage, theNational Iranian Oil Company (NIOC) for

production level is expected to increase

the integrated appraisal and develop-

to 260,000 barrels per day.

ment operations of the Azadegan Oil
IRAN

Field in the Islamic Republic of Iran,
Kuwaitand participated in the project as an
operator with a 75% working interest.

Oil field

Under the current plan, oil production23

24 INPEX Holdings Inc.

Latin America

Cuervito Block and Fronterizo Block
East Guarico Unit and Sanvi-Guere Unit

+3

Frade Block+1+2

INPEX Holdings Inc.

+1

East Guarico Unit and Sanvi-Guere Unit
Contract Area

Venture Company (est.)

Interest Owned

East Guarico

Teikoku Oil de Venezuela, C.A. (September 19, 1992)*Teikoku Oil de Venezuela 100%

Sanvi-Guere

Teikoku Oil de Sanvi-Guere, C.A. (March 2, 1994)*Teikoku Oil de Sanvi-Guere 100%
*Operator

East Guarico Unit /Sanvi-Guere Unit

CaracasGeorgetown
VENEZUELAGUYANA

BogotaCOLOMBIA

In 1991, the Venezuelan nationaltion of crude oil and natural gas fields,

petroleum company (Petróleos deexploration and development activities

Venezuela, S.A. [PDVSA]) announced

as an operator, under the Operating

it was opening bidding to foreign

Service Agreement (OSA) for eachcompanies through international

respective unit. The currently existingtenders for work to reactivate sus-

OSAs for both the East Guarico andpended oil fields and facilitate new

Sanvi-Guere Units are to be altered topetroleum exploration. Teikoku Oila joint venture agreement in order toparticipated in the bidding rounds andestablish separate ventures for crude

was awarded a 100% working interest

oil and gas, to be run by PDVSA andin a central onshore area, the East

the Company. The Company is under-

Guarico Unit, in July 1992, and thegoing necessary procedures for this

Sanvi-Guere Unit in November 1993.

transition.

BRAZILThe Company engages in the reactiva-+2 Frade BlockContract Area

Venture Company (est.)

Interest Owned

Frade Block

Frade Japão Petróleo Limitada (FJPL)(July 5, 1999)

FJPL 18.2609%*Chevron 51.7391%
Petrobras 30%*Operator

CamposBRAZIL

Macae

Frade Block

In July 1999, Frade Japão Petróleo

The Frade Oil Field was already

Limitada (FJPL), a joint venture estab-discovered in 1986 and the reserves

lished by INPEX CORPORATION andvolume was evaluated by two appraisal

Sojitz Corporation, acquired a 12.75%

wells in 2001, immediately afterworking interest in the Frade Block in

INPEX’s participation in the Block.

Brazil’s offshore northern Campos

In June 2006, the final investment

Basin. In July 2001, FJPL increased its

decision was made for the develop-

working interest to 15%, and in June

ment of the Frade Oil Field, and INPEX

2006, FJPL’s total working interest roseis engaging in development and pursu-

to approximately 18.3% in accordanceing commercial production in 2009.

with contractual agreements.

This project will realize the first everAtlantic Ocean

crude oil production in Brazil by aJapanese enterprise.

25

26 INPEX Holdings Inc.

+3

Cuervito and Fronterizo Blocks
Contract Area

Venture Company (est.)

Interest Owned

Cuervito

Teikoku Oil de Burgos, S.A. de C.V.
(September 9, 2003)

Teikoku Oil de Burgos 40%*Peterobras 45% Diavaz 15%

Fronterizo

Teikoku Oil de Burgos 40%*Peterobras 45% Diavaz 15%*Operator

UNITED STATES OF AMERICA

In October 2003, Teikoku Oil won an

duction operations, based on the

open bid for and acquired a 40%

Multiple Service Contract. This projectworking interest in the Cuervito Blockrepresents the first entry by a Japanesein the Burgos Basin in northeasternenterprise into an oil and natural gas

Mexico. The following month, Teikoku

development project in Mexico.

Cuervito

Oil also acquired a 40% working
interest in the Fronterizo Block, located
Fronterizo
MEXICO

next to the Cuervito Block. This natural
gas development project fosters theredevelopment of gas fields and pro-

INPEX Holdings Inc.

Africa+3,4+2West Bakr BlockEl Ouar I and II Blocks, Ohanet Block
Offshore Congo Block+127

28 INPEX Holdings Inc.

+1

Offshore Congo BlockContract Area

Venture Company (est.)

Interest Owned

Offshore Congo Block

Teikoku Oil (D.R. Congo) Co., Ltd.
(August 1, 1970)

Teikoku Oil (D.R. Congo) 32.28%*Perenco 50% Chevron 17.72%*Operator

In July 1970, Teikoku Oil acquired a

volume is over 200 million barrels in

Mwambe17.03% working interest and partici-

this block. The Company is engaging in

MiasatoLibwa

pated in oil exploration and develop-

stable production operations fromment in the Offshore Congo Block.

existing oil fields while conducting

Additional interest was acquired in July

appraisal work for discovered structures.

MibaleMotobaLukamiMoko

MuandaBananaTshiala1972, increasing Teikoku Oil’s share to32.28%. The GCO Field was discov-

GCO
Soyo

ered in 1971, and oil productioncommenced in 1975. Including the
GCO Field, 11 oil fields have been

Oil field

discovered, and cumulative production+2

West Bakr BlockContract Area

Venture Company (est.)

Interest Owned

West Bakr

The Egyptian Petroleum
Development Co., Ltd. (EPEDECO)(July 17, 1970)*EPEDECO 100%

*Operator

Mediterranean Sea

Suez Canal
Cairo

EGYPT

West Bakr

In June 1975, EPEDECO, a joint

with commercial production

venture established by Teikoku Oil,commencing in 1990.

Mitsui and others, acquired a 100%

In July 2005, the contract term wasworking interest in the West Bakr

extended through 2020 and theBlock, located in a desert region on the

Company maintains stable production

west bank of Egypt’s Gulf of Suez, andoperations in existing oil fields while

conducted exploration activities as an

pursuing possibilities for increased

operator of the project. As a result,production through additional explo-

three oil fields were discovered andration activities.

commercial production has continued
since 1980. In addition, a new oil field
was discovered through additional
exploration work conducted from 1989,

INPEX Holdings Inc.

+3

El Ouar I and II Blocks
Contract Area

Venture Company (est.)

Interest Owned

El Ouar I

Teikoku Oil Algeria Co., Ltd.
(December 21, 2001)

Teikoku Oil Algeria 10.29%*Sonatrach 67.33% Eni 22.38%

El Ouar II

Teikoku Oil Algeria 10.29%*Sonatrach 67.33% Eni 22.38%*Operator

In November 2001, Teikoku Oil
acquired a 10.29% working interest in
the El Ouar I and II Blocks, located in
Tunisia

Algeria
Libya

El Ouar Block

onshore eastern Algeria. The drilling of
exploration wells confirmed the existence of natural gas and condensate in
El Ouar I in 1997, and in El Ouar II in
2001. Feasibility studies for commercial development of natural gas are
currently under way.

+4

Ohanet BlockContract Area

Venture Company (est.)

Interest Owned

OhanetJapan Ohanet Oil & Gas Co., Ltd.
(JOOG)(March 15, 2001)

JOOG 30%*BHPP 45% Woodside 15%
Petrofac 10%*Operator

Tunisia

Algeria
Libya

OhanetTeikoku Oil has jointly invested inment project in which a Japanese

JOOG with Itochu Oil Exploration Co.,

enterprise has participated in Algeria,Ltd. In January 2001, JOOG acquired awhich boasts one of the largest natural

30% working interest in the Ohanetgas reserves in the world.

Block in southeast onshore Algeria.
Based on a risk service contract, thisgas field development project commenced production of natural gas,condensate and LPG in October 2003.

Oil and Gas field

This is the first large-scale gas develop-29

30 INPEX Holdings Inc.

Japan

Extension to Shin Tokyo Line (Under Construction)
Shin Tokyo Line

Offshore Iwaki Line
Minami-Nagaoka
Gas Field

Offshore Iwaki
Gas Field

Shin Oumi Line (Planned)
Gunma Interconnection Line
(Planned;Teikoku Oil and Tokyo Gas)

Tokyo Line

Ryomo Line

Matsumoto Line
Kofu Line

Iruma Line

Shizuoka Line (Under Construction)
Sodeshi LNG Terminal(Shizuoka Gas)

Second Suruga Trunk Pipeline (Shizuoka Gas)

Minamifuji Line* (Under Construction)* Three Company Cooperative Pipeline (Teikoku Oil, Shizuoka Gas, and Tokyo Gas)INPEX Holdings Inc.

+ Minami-Nagaoka Gas Field and Domestic Natural Gas Business
Since its founding in 1941, Teikoku Oil

Yamanashi, Nagano and Niigata

increasing demand from existing supply

Co., Ltd. (“Teikoku”) has promoted

Prefectures, connects the Minami-

areas and neighboring regions.

exploration and development projects

Nagaoka Gas Field with the vast naturalfor 65 years both at home and overseas.

gas market of the Tokyo metropolitan

ing environment in the last two years is

On the domestic front, Teikoku Oil isarea, supplying natural gas to over 30

the prolonged trend of escalating crude

currently operating several oil and gas

city gas companies and large-scale

oil prices, and this has led to an accel-

fields in Niigata, Akita, Chiba andindustrial consumers along the pipeline.

erated shift from petroleum fuels to

Fukushima Prefectures, while also

A substantial change in the operat-

Natural gas is a clean form ofnatural gas in terms of cost competitive-

handling the petroleum products busi-

energy with less of an environmental

ness. Teikoku has experienced strong

ness. The discovery of oil and gas fields

burden when burned than other types

demand for natural gas primarily forin the Joetsu area of Niigata Prefectureof fuel. This drives growing demand forindustrial use, particularly in the north-

was a turning point, as Teikoku estab-use both as a city gas and as an indus-

ern Kanto region. The annual sales

lished Japan’s first long-distance andtrial fuel. Anticipating this trend,target of 1,200 million cubic meters forhigh-pressure natural gas pipeline from

Teikoku has been proactively extending

fiscal 2010 will be achieved within thisNiigata to Tokyo in 1962, and has since

pipelines for 10 years, thereby expand-fiscal year, four years ahead of the

expanded the natural gas supply foring its natural gas supply area. Together

schedule, and further rapid growth isboth residential and industrial/commer-with this, Teikoku has made effective

expected in the coming years. Teikoku

cial consumers along the pipelinemarketing efforts that leverage the costhas been strategically reducing the

network. Furthermore, as an entry into acompetitiveness of domestic natural

price of domestic natural gas in pursuit

new business field, a gas turbine powergas toward imported LNG, resulting inof maintaining competitiveness amid

generation plant, which can be fueled

an annual sales growth rate of 8% on

the progress in deregulation. In theby either the natural gas or condensate

average since 1998.

context of soaring crude oil prices in

produced at Teikoku’s own gas field, will
start commercial operation in 2007.

Teikoku has been vigorously

recent years, we will endeavor to gain

implementing the reinforcement ofcustomers’ understanding of a review ofthis longstanding pricing policy.

The backbone of Teikoku’s natural

production facilities in addition togas business is based on the Minami-enhancement of pipeline transport

Under these circumstances, LNG

Nagaoka Gas Field and trunk pipeline

capacity, with the aim of shoring up

will be supplied from a regasification

network, and this has already become

growth. At the Minami-Nagaoka Gas

terminal along Japan’s Pacific coast

the “cash engine” for the creation of

Field, overall output capacity will beafter 2010 to assure a supply source

long-term stable profits. Discovered inboosted approximately 1.5 times by thethat complements the Minami-Nagaoka

1979, the Minami- Nagaoka Gas Field,

end of this fiscal year with the establish-

Gas Field. Simultaneously, plans are tolocated southwest of Nagaoka city,

ment of a new gas processing plant. In

realize a stable supply and significant

Niigata Prefecture, boasts the largest

addition, for the purpose of effectively

improvement in transport capacity,

natural gas reserve in Japan. Its ratio ofcontending with seasonal demand

striving for the continuous long-term

reserves to production (R/P) well

variations and short-term production

growth of the domestic natural gas

exceeds 30 years, even after over 20

shutdowns, Teikoku is proceeding withbusiness. As a prospective vision, we

years have passed since the com-the reinforcement of output capacity

will explore a feasible plan for themencement of production, and thefrom its nearby underground gas

establishment of a “natural gas value

proved reserve is expected to increasestorage by up to 1.5 times. With thechain” that organically connects theby 10% or more, given recent success-total pipeline network reaching 1,300

natural gas business infrastructure

ful technological developments. The

kilometers in 2007, measures are beingin Japan with the Group’s overseas

trunk pipeline network encompassing

considered to further reinforce thisnatural gas assets, aiming at further

the Kanto region, along with

infrastructure in order to respond to

improvement of enterprise value.

3132 INPEX Holdings Inc.

Corporate GovernanceCorporate Governance
INPEX Holdings recognizes the importance of improving the efficiency and soundness of its
management and enforcing compliance in order to continue increasing corporate value andmaintain the trust of its stakeholders including shareholders and society at large, and willcontinue to reinforce corporate governance.
Corporate Governance Structure

Directors to contribute to the develop-

including the interlocking directors, are

Directors and Board of Directors Meeting

ment of the Company’s business. The

required to sign a written undertaking to

The Board of Directors of INPEX Holdings

four interlocking directors serve concur-

carry out their duties as officers of theInc. (the “Company”) is composed of 16

rently as directors of Japan Petroleum

Company appropriately and with themembers, four of whom are outside

Exploration Co., Ltd., Mitsubishi

highest regard for the importance of

directors. The Board of Directors meets

Corporation, Mitsui Oil Exploration Co.,such matters as their obligations inonce a month and when necessary toLtd. and Nippon Oil Corporation (“share-connection with non-competitive prac-

discuss and make decisions on impor-holder corporations”), respectively.

tices under the Japanese Company

tant operational matters, and oversees

At the same time, however, theCode, the proper manner for dealing withshareholder corporations are involved inconflict of interest, and confidentiality.

the execution of operations.
Each of the four outside directors

businesses that overlap with those of the(“interlocking directors”) has many years

Company. The Company therefore

Executive Committee

of management know-how and experi-

recognizes that it must pay particular

The Executive Committee has beenence in the Company’s business and is

attention to corporate governance toestablished to speed up decision-able to offer objective, professional advice

avoid conflicts of interest in connection

making and resolve matters that do notregarding operations. For this reason,with competition and other matters.

require a decision by the Board ofthey were asked to join the Board of

To this end, all Company directors,

Directors, and to conduct discussions
that facilitate the Board’s decisions.

Statutory Auditors andBoard of Statutory Auditors

Corporate Governance System

The Company employs a statutory
auditor system. The Board of Auditors

Shareholders’ Meeting
Appoint/dismiss

Independent
Auditors
Accounting
audit

Appoint/dismiss

Board of Statutory Auditors
Statutory Auditors

Audit

Appoint/dismiss

is composed of four members, including two from outside the Company,

Audit

Accounting audit

Board of Directors
Directors
Appoint/
supervise/dismiss

who attend meetings of the Board of
Appoint

Directors and Executive Committee,
conduct interviews with departments asnecessary and audit the execution of

Executive Committee

duties of directors with regard to overall
operations and individual projects

President

based on reports from relevant departCompliance Committee

Reportments and other information. Statutory
Internal audit

Internal Audit Unit

Each Division, Each Subsidiary

auditors also receive reports related toongoing audits from the independent

INPEX Holdings Inc.

auditors and internal audit reports fromor share transfer, capital reductions andscope of the veto is limited and guide-

the Internal Audit Unit.

dissolution. Any appointment or removal

lines have been set for the exercise ofNone of the statutory auditors haveof directors or merger, share exchange

veto rights, the special class share is anany special interests in the Company.

or share transfer requires a resolution byabsolute minimum necessary measure

the holder of the special class share,that is highly transparent and does not

Internal Audit

provided 20 percent or more of theunjustly impinge on the Company’s

The Internal Audit Unit was establishedvoting rights attached to shares ofability to operate with flexibility andas an internal audit division independentcommon stock are held by a single

efficiency.

from business departments and directly

non-public entity or a single non-public

responsible to the president, to ensure

entity and its joint shareholders.

the appropriateness and efficiency of

The Minister of Economy, Trade andRisk Management andCorporate Ethics

business activities. The Audit Unit

Industry announced in its 74th bulletin

The Company recognizes that two

evaluates internal control systems on a

dated April 3, 2006, the establishment

factors are vital to increase corporategroup-wide basis. It examines andof guidelines for the exercise of thevalue amid drastic changes in its oper-

evaluates the status of management

special class shareholder’s veto rights

ating environment: forestalling andbodies, the efficiency of business opera-(with respect to decisions not approved

mitigating losses by properly managing

tions and other matters, pinpointing

by a resolution of the special classrisk inherit in its business operations;problem areas, making necessary

shareholder). The Minister of Economy,

and maintaining and strengthening trust

reports and conducting follow-up audits

Trade and Industry may veto any one ofwith customers, investors and otherto confirm the status of improvements.

the aforementioned major corporate

parties. As such, the Company will

The Internal Audit Unit also contributes

decisions only to the extent that it

strive on an ongoing basis to enhance

to proper operational management bydetermines a proposed action or trans-

its risk management.

exchanging opinions with independentaction (1) will likely result in theand statutory auditors as necessary.

Company being managed in a mannerof continuous corporate development.

Compliance is also a vital elementinconsistent with its goal of securing a

The Company will methodically develop

Special Class Share andCorporate Governancestable energy supply for Japan as aits compliance system to ensure strict

national flag company; (2) will likely

observance of laws, regulations and

The Company’s Articles of Incorporation

adversely affect the goal of efficiently

corporate ethics.

stipulate that certain major corporate

securing a stable energy supply fordecisions require a resolution by theJapan as a national flag company; orInformation Disclosure

holder of a special class share in(3) may affect the exercise of voting

The Company seeks to improve man-addition to the approval of the share-rights of the special class shareholder.

agement transparency and account-holders’ meeting or Board of Directors.

The exercise of veto rights by theability by disclosing information in a

The special class share is issued to thespecial class shareholder is, therefore,

timely fashion through IR activities

Minister of Economy, Trade and Industry.

restricted. With the existence of thisdirected at shareholders and investors,

Major corporate decisions include

class of share, however, the Company

the shareholders’ meeting, its Web site,

the appointment and removal of direc-

can minimize the risk of losing manage-

public relations activities and in othertors, the disposition of material assets,ment control to foreign-owned concerns

ways, and will constantly strive toamendments to the Articles ofand an unsolicited takeover for specula-enhance these efforts.

Incorporation, mergers, share exchange

tive reasons. Moreover, because the3334 INPEX Holdings Inc.

Mission, Corporate Social Responsibility Policy &Health, Safety and Environment Policy

MissionThe mission of INPEX Holdings Group is to provide a stable and efficient supply of energy to our customers
by exploring and developing oil and natural gas resources throughout the world. Through its business,
we aim to become an integrated energy company, which contributes to our community and makes it morelivable and prosperous.

Corporate Social Responsibility Policy
INPEX Holdings Group conducts our business efficiently and proactively with a long-term perspective.
Guided by the leadership of the top management, we are committed to fulfilling our corporate social
responsibilities. Our key principles include:

1. Deliver energy in a safe, efficient and reliable manner.
2. Comply with laws, rules and regulations and adhere to ethical business conducts.
3. Communicate timely and openly with shareholders, employees, customers, business partners
and other stakeholders.
4. Value the individuality of our employees, secure a safe, healthy and worker-friendly environment,
and provide opportunities for career development.
5. Recognize our responsibility to help preserve the environment and contribute to sustainable development.
6. Contribute to the development of our host countries and communities based on the understandingof cultural diversity.

INPEX Holdings Inc.

Health, Safety and Environment Policy
INPEX Holdings Group is a global, independent energy company and our vision is to provide a stable andefficient supply of energy to our customers. We recognize our responsibility to sustainable development and,in this regard, we aim to protect the health and safety of all those associated with our business activities andto minimize adverse impacts on the environment.

To accomplish this, we will:• Comply with all applicable HSE laws and regulations, and apply our standards where laws andregulations do not exist or are considered insufficient.

• Implement and maintain HSE management systems, and perform regular audits of legal complianceand progress of our HSE activities to achieve continuous improvement in our HSE performance.

• Identify and assess health and safety hazards and eliminate or, if not possible, reduce risks to as
low as reasonably practicable to prevent incidents.

• Conduct environmental assessments and promote efficient energy consumption to reduce
adverse environmental impacts.

• Maintain and regularly test emergency plans to ensure a quick and effective response in theevent of emergencies.

• Provide resources that will enable our employees to meet HSE objectives and targets.
• Provide training in HSE activities and safe driving to ensure all employees are aware of their
responsibilities and accountabilities in these areas.

• Require contractors to manage HSE in accordance with this Policy, and to achieve agreed HSE targets.
• Communicate openly on HSE activities with stakeholders.

35

36 INPEX Holdings Inc.

Management Team1

Representative Director and Chairman
Kunihiko Matsuo

2

Representative Director
Akira Isono

3

Representative Director
Masatoshi Sugioka

4

Representative Director and President
Naoki Kuroda

5

Director
Hisatake Matsuno

6

Director
Katsujiro Kida

7

Director
Mutsuhisa Fujii

8

DirectorTakeshi Maki

9

Director
Seiji Yui

10

Director
Masaharu Sano

11

Director
Akinori Sakamoto

12

Director
Seiya Ito

13

Statutory Auditor
Shigeru Hayashi

Directors (Outside)
Kazuo Wakasugi
Hisanori Yoshimura
Junji Sato
Shigeo Hirai

10

Statutory Auditors (Adjunct)
Hiroshi Sato*
Tohru Tsuji*
Michihisa Shinagawa*Outside Auditor

8

7

6

5

12

3

1

11

9

13

2

4

INPEX Holdings Inc.

INPEX
Financial Section
INPEX

+

37

TEIKOKU
DATA

Contents
Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

38

Consolidated Balance Sheets

50

Consolidated Statements of Income

52

Consolidated Statements of Shareholders’ Equity

53

Consolidated Statements of Cash Flows

54

Notes to Consolidated Financial Statements

55

Report of Independent Auditors6738 INPEX Holdings Inc.

Management’s Discussion andAnalysis of Financial Condition and Results of OperationsDATA

TEIKOKU

INPEX

Overview
In spite of the continued upward trend in crude oiland natural gas prices, the Japanese economy continued to benefit from a modest recovery during theyear under review. Supported by global economic
growth primarily in the United States and China,
exports and capital investment increased and corporate earnings improved. There were signs of amoderate upward trend in the Japanese economy
with increased personal consumption and improved
employment rates.
Crude oil prices have a significant impact on thebusiness performance of the INPEX Group.
Demand for petroleum increased due to the sustained strength of the US economy, as well as the
rapid growth in China and India. Crude oil pricesrose due to a change in the fundamentals, notably adecline in production capacity in OPEC countries.
Other factors including increased geopolitical risk
and speculative dealing in oil futures market also
played a role. Furthermore, the hurricanes thatstruck the United States revealed a bottleneck in its
refining capacity, with the result that the average
price of West Texas Intermediate (WTI) crude oil,which stood at US$53.25 per bbl in the first quarterof the fiscal year, rose to US$70.85 per bbl at one
point on August 30, 2005. Thereafter, the price fellto around US$56 per bbl toward the end of theyear, but trended upward again from January 2006
due to increased geopolitical risk and other factors,
and the closing price of near-term futures of WTI
remained high at US$66.63 per bbl at the end of
the fiscal year. As a consequence, the average sales
price of the Company’s crude oil for the fiscal year
was US$55.77 per bbl, an increase of US$15.84, or
39.7%, from the previous fiscal year.
Meanwhile, reflecting the widening gap in interest rates between Japan and the United States due
to continuous rises in interest rates in the UnitedStates, the exchange rate of the Japanese yen
against the U.S. dollar fell gradually from ¥107.41
at the beginning of the fiscal year, exceeding the¥120 mark in December 2005. Thereafter, the yenrose slightly on speculation of a rate-rise with theend of quantitative easing in Japan, and at the endof the year under review it stood at ¥117.47, or¥10.06 lower than at the end of the previous year.
As a consequence, the average exchange rate forsales of the Company was ¥113.56 per US dollar,
which represents yen depreciation of ¥6.18 or 5.8%
from the previous year.
Until the year ended March 31, 2005, for the
purpose of consolidating INPEX Southwest CaspianSea, Ltd. and INPEX North Caspian Sea, Ltd., thefiscal year of these two subsidiaries, i.e., December
31, was used by the Company. Effective April 1,
2005, the Company began to use their financial
statements prepared for consolidation purpose as ofMarch 31, the consolidation closing date. As aresult, these two subsidiaries had 15 months fromJanuary 1, 2005 to March 31, 2006. This change
was made in order to establish a better presentationof the Company’s consolidated financial results,
considering the increasing materiality of these two
subsidiaries.
For the year ended March 31, 2006, we had net
sales of ¥704.2 billion and net income of ¥103.5
billion. Net sales of crude oil and natural gas
amounted to ¥462.7 billion and ¥241.5 billion,
respectively. Results for net sales and net income
were historical highs due to the increase of crude oil
prices.
As of March 31, 2006, our total net proved
reserves were approximately 1,571 MMboe, and forthe year ended March 31, 2006, our net annual
production was 336.0 Mboe per day. Net proved
reserves were comprised of 1,053.9 MMbbls of
crude oil, condensate and LPG, and 3,102.5 Bcf ofnatural gas as of March 31, 2006. Approximately
24.8% of such reserves were classified as net
proved undeveloped reserves. Net production forthe year ended March 31, 2006 averaged 204.7
Mbbls per day of crude oil, condensate and LPG,
and 787.8 MMcf per day of natural gas.

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

INPEX Holdings Inc.

Crude Oil and Natural Gas Prices

production sharing contracts depend on not only
production levels but also on the price of crude oiland natural gas, cost recovery and equity portion.

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 ofparticipation in exploration phase projects has amore immediate negative impact on our results ofoperations than would be the case if such costs
were accounted for using the successful efforts orfull cost method of accounting under U.S. GAAP.

Fluctuation in Exchange Rates Between the
U.S. Dollar and Japanese Yen

Corporate Taxes Imposed on Us OutsideJapan
We conduct all operations outside Japan, and mostof corporate taxes are paid overseas. With respect
to the overseas taxes, expenses incurred in Japanare not deductible in general. Such domestic
expenses include those relating to administrative
expenses at our headquarters, foreign exchange
losses and the provision of various types of

DATA

Our crude oil and natural gas sales volumes depend
primarily on the level of proved and developed
reserves in the projects in which we participate, andmarket demand for crude oil and natural gas. The
level of proved and developed reserves is affectedby such factors as speed at which successful exploration and development moves to production andspeed at which we produce crude oil and naturalgas, the extent to which we acquire additional producing reserves, our own as well as our partners’
expertise in recovery from reserves, and expirationand extension of the terms of the contracts underwhich we produce crude oil and natural gas. As
described below in “Our Method of Accounting for
Types of Arrangements, ” our sales volumes underWe fund certain exploration and development projects with long-term loans. A substantial portion of
our long-term debt has floating interest rates thatare 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.

TEIKOKU

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, isaffected by fluctuations in the exchange rate
between these currencies. Appreciation of theJapanese yen against the U.S. dollar negatively
impacts our sales and related earnings, while a
depreciation of the Japanese yen against the U.S.
dollar has the opposite effect. However, as a substantial portion of our long-term debt is denominated in U.S. dollars, revaluation of such long-term
debt at the end of each period results in a foreignexchange gain if the Japanese yen appreciates
against the U.S. dollar, while a depreciation of theJapanese yen against the U.S. dollar has opposite
effect. As a result, these positive and negative
effects cancel out each other.

Fluctuation in Interest Rates
Our Crude Oil and Natural Gas Sales
Volumes

INPEX

While we negotiate sales prices for crude oil andcondensate with customers, those prices generally
take into account official prices, which are
determined by governmental authorities in theirrespective oil producing regions, which fluctuate
generally in line with the fluctuation in international
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. Typically, 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 to international market
prices. International oil and gas prices are volatile
and are influenced by global as well as regional
supply and demand conditions. This volatility has asignificant 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 ofnatural gas are not directly proportional to those of
crude oil prices; and• since sales and net income are determined by theprices as of the dates on which sales are recorded, the actual transaction price does not matchthe average price of the period.

39

INPEX

40 INPEX Holdings Inc.

allowances. When such domestic expenses
increase, pre-tax income recorded 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 andgas operations on a PSC basis and does not permit
the aggregating of expenses from different PSCs fortax 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 fixedmargin regime, limiting our sensitivity to changes inoil prices. In addition, corporate tax rates and others
applicable to another substantial portion of ourcrude oil production at the ADMA Block in theUpper Zakum Fields were changed from 2004, andresult in that portion becoming subject to a fixedmargin regime from 2006.

TEIKOKU

Our Method of Accounting for Types of Arrangements
Currently, we have mainly entered into two types ofarrangements in connection with these activities: PSCs
and concession agreements. For the year ended
March 31, 2006, approximately 60% of our net sales
were attributable to sales under PSCs and approximately 40% were under concession agreements.

DATA

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 forallocating oil and gas production among the hostcountry’s government and contractors. The following discussion is based on one type of PSC arrangement that applies to projects in Indonesia. Under
that type of 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 allocated between thehost 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 thecurrent period, as calculated under the PSC,
and which is allocated only to the contractors;
because the oil and gas equivalent is determined based upon the current unit price, as theunit price of crude oil and natural gas increases,
the volume of oil and gas comprising the “costrecovery portion” decreases while that of the“equity portion” (explained below) increases;
and if the actual production for the year is notenough to cover the entire quantity of the oiland gas equivalent so calculated, the “costrecovery portion” will be reduced to the extent it
is covered by the actual production, and thequantity not so covered is carried forward to thesucceeding year in accordance with the relevant
PSC; and(3) “equity portion,” which represents the residual
and is allocated between the host country’s government and the contractors pursuant to prescribed percentages.
For purposes of our statements of income, we record:• as net sales, our share of total sales relating tocrude oil and natural gas production that are allocated to contractors, and• as cost of sales, a portion of “Recoverable
account under production sharing” that is recovered through the allocation of our share of the“cost recovery portion.”

Recoverable Costs under PSCs
Exploration Costs
Our share of all recoverable exploration costs
incurred under the terms of the relevant PSC iscapitalized under “Recoverable accounts under
production sharing.”

INPEX Holdings Inc.

Development Costs
We record our share of all recoverable expenditures
under the terms of the relevant PSC under“Recoverable accounts under production sharing.”

Administrative Expenses
Administrative expenses are recorded under“Recoverable accounts under production sharing” ifsuch expenses are recoverable under the relevant
PSC.

Non-recoverable Costs under PSCs

Concession Agreements
Acquisition Costs
We account for acquisition costs related to projects
under concession agreements, or “Mining rights” inthe same manner as those related to projects under
PSCs, as described above.
Exploration Costs
Our share of costs incurred for exploration isexpensed as incurred.
Development Costs
Our share of costs related to mining facilities is capitalized under “Tangible fixed assets” in the 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.
Administrative Expenses
Our share of administrative expenses is expensed
as incurred.

Critical Accounting Policies and Estimates
We prepare our consolidated financial statements inconformity with Japanese GAAP. The preparation ofthese financial statements requires the use of estimates, judgments and assumptions that affect thereported amounts of assets and liabilities at the dateof the financial statements and reported amounts ofrevenues and expenses during the reporting period.
Actual results may differ from these estimates, judgments and assumptions.
An accounting estimate in our consolidated
financial statements is a critical accounting estimate
if it requires us to make assumptions about mattersthat 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 wereasonably could have used in the current period,or by changes in the accounting estimates that arereasonably likely to occur from period to period. We
have identified the following critical accounting 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 ofthe significant uncertainty involved in the exploration activities for such projects, a reserve in equal

DATA

Acquisition Costs
For projects under PSCs that are entirely in the
exploration phase, we expense costs relating to
the acquisition of rights to explore, develop andproduce, or “Exploration and development rights,”
as they are incurred. When we acquire rights toprojects which are already in the development or
production phase, we record the acquisition expenditures or costs under “Exploration and development rights” in our consolidated balance sheets,
which are amortized under the unit-of-production

Interest on Loans
We expense interest on loans we obtain for PSC
projects.

TEIKOKU

As explained above under “Cost Recovery andProduction Sharing,” such expenses are recovered
as capital or non-capital expenditures.

method. Generally, cost recovery provisions under
PSCs do not cover such expenditures or costs.

INPEX

Production Costs
During the production phase, operating costs
incurred for production are initially included under“Recoverable accounts under production sharing” ifsuch costs are recoverable under the relevant PSC.

41

TEIKOKU

INPEX

42 INPEX Holdings Inc.

amounts 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 in principle. Generally, thisallowance continues to remain unchanged in ourbalance sheet until the allowance balance exceeds
the remaining balance of exploration cost previously
capitalized during the exploration phase under“Recoverable accounts under production sharing,”
at which point the excess of the allowance balanceis reversed to income in the statements of income.
After governmental approval for development of afield in a contract area, in light of the uncertainly, areserve is provided for probable losses on development activities individually estimated for each project as “Allowance for recoverable accounts under
production sharing.” While we believe that theassessment and estimates are reasonable, futurechanges in the actual situation of projects may
affect future results of operations.

DATA

Unit-of-production Method
Mining facilities, mining rights and exploration anddevelopment rights when such rights are acquired
during the production phase are amortized by theunit-of-production method. The unit-of-production
method requires a significant estimate as to theproved 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.

Liabilities for Site Restoration andDecommissioning Costs
We recognize liabilities for the expected amount of
future decommissioning costs based on the futuredecommissioning plan. While we believe that theassessment and estimates are reasonable, futurechanges in the decommissioning plan may affectfuture results of operations.

Liabilities for Losses on
Development Activities
We recognize liabilities for the amount of provable
losses on oil and natural gas development activities
which are estimated individually for each project,such as delays in development. While we believethat the assessment and estimates are reasonable,
future changes in the actual situation of projects

may 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 theassessment and estimates are reasonable, futurechanges in the actual production volume, prices
and foreign exchange rates may affect future resultsof operations.

Deferred Tax Assets
We record deferred tax assets for temporary differences (including net operating loss carry-forwards)
arising mainly from the write-down of investments inrelated parties and revaluation of land. Valuation
allowances are provided when we believe that it ismore likely than not that assets will not be realized.
Also, we take into account the effect of foreign tax
credits in the calculation of valuation allowances.
Realization of deferred tax assets is principallydependent 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 ofretirement costs and related liabilities based on theactuarially determined present value of retirement
benefit obligations by the projected unit credit
method. However, a company 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 theactuarially determined present value of the retirement benefit obligations by the projected unit credit
method, different retirement costs and liabilities
would have been reported.

INPEX Holdings Inc.

43

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)
2005

2006

Net sales¥478,587

100.0%¥704,235

100.0%

Cost of sales

197,09441.2

257,904

36.6

Gross profit

281,49358.8

446,331

63.4

Exploration expenses

2,474

0.5

5,521

0.8

Selling, general and administrative expenses

8,718

1.8

10,211

1.4

Depreciation and amortization

1,638

0.4

3,948

0.6

268,66356.1

426,651

60.6

4,060

0.9

9,742

1.4

—

—

1,347

0.2

678

0.1

1,183

0.1

4,738

1.0

12,272

1.7

Operating income

INPEX

Years ended March 31,

Other income:Interest income
Other

TEIKOKU

Equity in earnings of affiliates

Other expenses:
Interest expense

2,984

0.6

9,033

1.3

Equity in losses of affiliates

1,583

0.3

—

—

518

0.1

3,642

0.5

1,607

0.3

405

0.1

Provision for allowance for recoverable
accounts under production sharing
Amortization of exploration and development rights

—

—

1,584

0.2

Provision for losses on development activities

—

—

1,982

0.3

Provision for doubtful accounts

—

—

2,311

0.3

Amortization of goodwill

2,784

0.6

—

—

Foreign exchange loss

2,859

0.6

12,418

1.8

Other

2,434

0.6

4,008

0.5

14,7693.1

35,383

5.0

Income before income taxes and minority interests

258,63254.0

403,540

57.3

Income taxes

182,60738.1

298,657

42.4

(469)

(0.1)

1,406

Net income¥ 76,494

16.0%¥103,477

Net Sales

The increase in consolidated net sales of crude
oil and natural gas was mainly due to the net effectof the following factors: while our sales volume ofnatural gas decreased 4.5%, our sales volume ofcrude oil increased 4,641 thousand bbls, or 6.8%,
to 72,521 thousand bbls, which reflects an increasein production volume of crude oil at the ACG Oil
Fields and ADMA Block, resulting in an increase of
net sales in amount of ¥11.5 billion; there was apositive impact on net sales in amount of ¥175.8
billion, since the increase in the Company’s average

Minority interests

Net sales increased ¥225.6 billion, or 47.1%, to¥704.2 billion for the year ended March 31, 2006
from ¥478.6 billion for the year ended March 31,
2005. Of this figure, consolidated net sales of crude
oil increased ¥169.5 billion, or 57.8%, to ¥462.7
billion from ¥293.2 billion for the year ended March
31, 2005. Consolidated net sales of natural gas
increased ¥56.1 billion, or 30.3%, to ¥241.5 billion
from ¥185.4 billion for the year ended March 31,
2005.

0.2
14.7%

DATA

Provision for site restoration and decommissioning costs

TEIKOKU

INPEX

44 INPEX Holdings Inc.

sales price of crude oil for the year ended March 31,
2006 was US$55.77 per bbl, a US$15.84 or 39.7%
increase over the previous year, and the averagesales price of natural gas also increased 29.3%;
and of ¥38.3 billion since the average exchange
rate for the Company’s net sales during the year
ended March 31, 2006 was ¥113.56 per U.S. dollar,a ¥6.18 per U.S. dollar, or 5.8% yen depreciation
against the U.S. dollar.
Cost of Sales
Cost of sales increased ¥60.8 billion, or 30.9%, to¥257.9 billion for the year ended March 31, 2006
from ¥197.1 billion for the year ended March 31,
2005.
This was primarily due to an increase in royalties associated with higher sales at the ADMA
Block, an increase in investment in development
and production at the Offshore Mahakam Block,and an increase in the recovery of the investment
associated with higher sales from the ACG Oil Fields.

DATA

Exploration Expenses
Exploration expenses increased by ¥3.0 billion, or
123.2%, to ¥5.5 billion for the year ended March 31,
2006 from ¥2.5 billion for the year ended March 31,
2005. This increase was primarily due to increased
exploration activity at the WA-285P (Ichthys) Blockin Australia.
Selling, General and Administrative Expenses
Selling, general and administrative expenses
increased ¥1.5 billion, or 17.1%, to ¥10.2 billion forthe year ended March 31, 2006 from ¥8.7 billion
for the year ended March 31, 2005. This was primarily due to an increase in transportation costs at
the ACG Oil Fields.
Depreciation and Amortization
Depreciation and Amortization increased by ¥2.3
billion, or 141.0%, to ¥3.9 billion for the year ended
March 31, 2006 from ¥1.6 billion for the year
ended March 31, 2005. This was primarily due toan increase in amortization of exploration anddevelopment rights which belong to INPEXSouthwest Caspian Sea, Ltd.
Under our accounting for PSCs, capitalized
costs included in “Recoverable accounts under production sharing” are reflected in cost of goods soldat the time of recovery, and thus we do not havesubstantial amount of depreciation or amortizationof fixed assets.

Other Income
Other income increased ¥7.6 billion, or 159.0%, to¥12.3 billion for the year ended March 31, 2006
from ¥4.7 billion for the year ended March 31,
2005. This was primarily due to an increase ininterest income of ¥5.7 billion and accounting forequity in earnings of affiliates of ¥1.3 billion.
Other Expenses
Other expenses increased ¥20.6 billion, or 139.6%
to ¥35.4 billion for the year ended March 31, 2006
from ¥14.8 billion for the year ended March 31,
2005. This was mainly due to an increase in foreignexchange loss of ¥9.6 billion, an increase in interest
expenses of ¥6.0 billion and an increase in provision for allowance for recoverable accounts under
production sharing of ¥3.1 billion.
Income Taxes
Income taxes for the year ended March 31, 2006
increased ¥116.1 billion, or 63.6%, to ¥298.7 billion from ¥182.6 billion for the year ended March 31,
2005 due to increased sales in a region where ahigh tax burden was imposed.
The effective income tax rate for the year ended
March 31, 2006 was 74% compared to 71% for theyear ended March 31, 2005.
As explained in “Factors Affecting Our Results ofOperations—Corporate Taxes Imposed on Us
Outside Japan,” the fact that most of the Company’s
corporate taxes are paid overseas and administrative
expenses incurred in Japan are not deductible forsuch taxes results in a high effective income tax rate.
Minority Interests
Minority interests for the year ended March 31,
2006 reflected a net profit of ¥1.4 billion from a net
loss of ¥0.5 billion for the year ended March 31,
2005.
Net Income
As a result of the foregoing factors, net income
increased ¥27.0 billion, or 35.3%, to ¥103.5 billion
for the year ended March 31, 2006 from ¥76.5 billion for the year ended March 31, 2005.

INPEX Holdings Inc.

45

Investment and Funding
Our Investments for Crude Oil and Natural
Gas Projects

INPEX
TEIKOKU

In order to maintain stable earnings, we need tocontinuously explore for new reserves of crude oiland natural gas, develop, produce and distribute.
The following information, which includes thebreakdown 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
definition of each item is as follows:• Exploration expenditures include exploration
drilling, and geological and geophysical studies.
If the project (contract area) is entirely in the
exploration phase, administrative costs, such as
personnel costs and office operations costs in the
country where the relevant project is conducted,
are included in this category.
• Development expenditures include development
drilling and production facilities.
• Operating expenses include well operations, maintenance, and supervision of production activities.
Administrative expenses in the project (contractarea) where there is a producing field and/or a fieldof which governmental approval for development
has been received, are included in this category.
Our definition of exploration and development
expenditures and the basis of preparation of the following table are different from those required under
the 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 requiresthat expenditures be recorded on an accrualbasis.
• We prepared the table based on definitions in thereports from operators. These definitions may not
be consistent with that of SFAS 69.
• SFAS 69 requires that administrative costs notdirectly related to exploration and development
activities be excluded from exploration and development expenditures. However, administrative
costs are not necessarily excluded from those
expenditures.

The table below shows our expenditures for the years ended March 31, 2005 and 2006:

2005

Exploration

¥

2.4%

¥

Development

113,406

65.7

167,61172.0

Subtotal

117,62668.1

175,980

75.6

55,00931.956,747

24.4¥172,635

100.0%¥232,727

100.0%

Operating expenses
Total

4,220

2006

8,369

3.6%

The table below shows our exploration and development expenditures for the years ended March 31, 2005
and 2006 by geographical region:(Millions of yen, except percentages)
Years ended March 31,

Asia and Oceania

2005

56.6%

¥ 89,756

Middle East

8,543

7.3

12,911

7.3

Caspian Sea area and others

42,44036.1

73,31341.7¥117,626

100.0%¥175,980

100.0%

Total¥ 66,643

2006

51.0%

DATA

(Millions of yen, except percentages)
Years ended March 31,

46 INPEX Holdings Inc.

The table below shows our operating expenses for the years ended March 31, 2005 and 2006 by geographicalregion:(Millions of yen, except percentages)

INPEX

Years ended March 31,

2005

2006

Asia and Oceania¥42,975

78.1%¥40,466

71.3%

Middle East

10,71019.5

12,978

22.9

Caspian Sea area and others

1,324

2.4

3,303

5.8

¥55,009100.0%¥56,747

100.0%Total

Our expenditures increased by ¥60.1 billion, or 34.8%, to ¥232.7 billion for the year ended March 31, 2006
from ¥172.6 billion for the year ended March 31, 2005. This was primarily due to increases in development
expenditures at the Kashagan Oil Field, ACG Oil Fields in the Caspian Sea area and the Offshore Mahakam Blockin the Asia and Oceania region.

TEIKOKU

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,
2005 and 2006 by geographical region. Expenditures for acquisitions include acquisition cost of mining rights,
exploration and development rights, and signing bonuses as well as the acquired tangible fixed assets andrecoverable accounts under production sharing due to acquisitions.
(Millions of yen, except percentages)
Years ended March 31,

Middle East

50,517

96.9

—

—

891

1.7

293

72.3

100.0%¥405

100.0%

Total

716¥52,124

1.4%

2006

¥

Caspian Sea area and others

DATA

2005

Asia and Oceania

¥112

27.7%

Our expenditures for acquisitions decreased by ¥51.7 billion to ¥0.4 billion for the year ended March 31,
2006 from ¥52.1 billion for the year ended March 31, 2005. This was primarily due to the acquisition of the
ADMA Block in the Middle East region during the year ended March 31, 2005.

INPEX Holdings Inc.

47

Analysis of Recoverable Accounts under Production Sharing

INPEX

With respect to projects under PSCs, our share of costs arising during the exploration, development and production phases are capitalized under “Recoverable accounts under production sharing.” The following tableshows changes in the balance of “Recoverable accounts under production sharing” during the years ended
March 31, 2005 and 2006:(Millions of yen)
Year ended March 31,
Recoverable accounts under production sharing

Balance at beginning of period
Add:

2005

2006

¥208,768¥239,619

Exploration costs

1,743

2,813

Development costs

101,416

155,086

Operating expenses

41,90941,377

—

3,341

Other

38,37562,331

Cost recovery—non-capital expenditures

72,111

84,997

Other

3,731

635

Balance at end of period¥239,619¥294,273

Allowance for recoverable accounts under production sharing at end of period¥ (41,518)¥ (44,547)

Other costs increased due to reclassification ofcertain recoverable costs invested by March 31,
2005 to recoverable accounts under production
sharing from other investment.
Cost recovery during the year ended March 31,
2006 primarily consisted of cost recovery at the
Offshore Mahakam Block, South Natuna Sea Block B
and ACG Oil Fields. This increase reflected increased
cost recovery from the Offshore Mahakam Blockand ACG Oil Fields.
A substantial portion of the amount under“Less: Other” for the year ended March 31, 2006
related to reductions in the balance of recoverable
accounts under production sharing with respect tofields being closed.

DATA“Cost recovery—non-capital expenditures” aregenerally higher than “operating expenses”
because some of the exploration costs and development 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, 2005,
exploration costs for the year ended March 31,
2006 increased primarily due to the increase at theMasela Block.
Development costs increased reflecting increases in development expenditures at the Kashagan Oil
Field, ACG Oil Fields and Offshore Mahakam Block.
Operating expenses for the year ended March 31,
2006 remained on par with results from the year
ended March 31, 2005.

TEIKOKU

Less: Cost recovery—capital expenditures

48 INPEX Holdings Inc.

TEIKOKU

INPEX

Liquidity and Our Funding Sources
Our policy is to maintain sufficient cash on hand at
any given time to fund expenditures for existing andnew crude oil and natural gas projects in a timely
manner and to provide for any steep decline of oil
and gas prices. For this purpose, our cash management policy is to invest excess cash in low-risk andliquid financial instruments. It is our strategy to
improve capital efficiency in the long term by business expansion while maintaining a sound financial
position with sufficient cash on hand.
Our primary sources of funding are cash on
hand and many other sources. We fund oil and gas
projects which are in the exploration phase withcash on hand and equity investments from outsiders, and oil and gas projects which are in thedevelopment phase with cash on hand and/or longterm loans. JBIC and Japanese commercial banks
have been providing such long-term loans. Certain
aggregate outstanding principal amounts of ourlong-term debt have been guaranteed by JOGMEC.
We are required to maintain for JBIC cash
collateral generally equivalent to six months’ debt
service in a reserve account.
We are considering to diversify financing sourcesin the future using non-recourse project financing,arrangement, issuance of bonds and equity financing.

Maturities of Long-term Debt
The following table summarizes the maturities of our outstanding long-term debt as of March 31, 2006:(Millions of yen and U.S. dollar)

DATA

Long-term debt denominated inYears ending March 31,

U.S. dollars

2007$ 117.1

2008

371.1

2009

120.0

—

14,096

2010

120.0

—

14,096

2011

120.0

—

14,0962012 and thereafter
Total

¥

Yen

Total yen equivalent—¥ 13,756—

43,594814.8

24,945

120,655$1,663.0¥24,945¥220,293

Historical Cash FlowsThe following table summarizes our historical cash flows for the years ended March 31, 2005 and 2006:(Millions of yen)
Year ended March 31,

2005

2006

Net cash provided by operating activities¥ 131,207¥ 218,240

Net cash used in investing activities(119,956)(252,400)

Net cash provided by financing activities

9,791

14,351

Cash and cash equivalents at end of period

128,375

114,968

INPEX Holdings Inc.

Cash Provided by Financing Activities

Cash provided by operating activities increased¥87.0 billion to ¥218.2 billion for the year ended
March 31, 2006 from ¥131.2 billion for the year
ended March 31, 2005. This increase was primarily
due to an increase of income before income taxes
and minority interests because of the rise in crude
oil and natural gas prices.

Cash provided by financing activities increased ¥4.6
billion to ¥14.4 billion for the year ended March 31,
2006 from ¥9.8 billion for the year ended March
31, 2005. This increase was primarily due to longterm borrowing from JBIC for development of the
Kashagan Oil Field.

INPEX

Cash Provided by Operating Activities

49

Cash Used in Investing Activities
Cash used in investing activities increased ¥132.4
billion to ¥252.4 billion for the year ended March
31, 2006 from ¥120.0 billion for the year ended
March 31, 2005. This increase was due to acquisition of investment securities and an increase indevelopment expenditures for the ACG Oil Fields
and Kashagan Oil Field.
TEIKOKU
DATA

50 INPEX Holdings Inc.

Consolidated Balance Sheets
INPEX CORPORATION and Subsidiaries
As of March 31, 2005 and 2006

Millions of yen

Thousands of
U.S. dollars(Note 3)

2005

2006

2006

Cash and cash equivalents¥ 128,375¥ 114,968

Accounts receivable—trade53,33960,098511,603

Marketable securities (Note 4)

18,391

21,518183,179

Inventories

1,282

3,134

26,67923

3,449

29,361ASSETSINPEXCurrent assets:

Deferred tax assets (Note 6)
Other current assets (Note 5)$

978,701

37,01054,407463,156

238,420

257,574

2,192,679

21,67021,746

185,120

Wells

98,942

104,474

889,367

Machinery, equipment, and vehicles

153,318

160,744

1,368,383

Tangible fixed assets:

TEIKOKU

Buildings and structures

Land

4,002

4,002

34,068Other

12,046

10,31587,810289,978

301,2812,564,748(221,717)(236,061)(2,009,542)

68,261

65,220555,206

133,106

131,650

1,120,712

5,381

4,857

41,347

144

250

2,128

138,631

136,757

1,164,187

Recoverable accounts under production sharing

239,619294,273

2,505,090

Less allowance for recoverable accounts under production sharing(41,518)(44,547)(379,220)

198,101

249,726

2,125,870

118,355

236,967

2,017,256

Long-term loans receivable

114

1,734

14,761

Deferred tax assets (Note 6)

2,208

10,27187,435

Other investments

20,901

22,417

190,832(661)(2,946)(25,079)(5,102)(5,282)(44,965)

333,916

512,887

4,366,110¥ 779,228¥ 972,438$ 8,278,182

Less accumulated depreciation and amortization
Intangible assets:
Exploration and development rights
Mining rights
Other

DATA

Investments and other assets:

Investment securities (Notes 4 and 5)

Less allowance for doubtful accounts
Less allowance for investments in exploration
Total assets
See accompanying notes to consolidated financial statements.

INPEX Holdings Inc.

Millions of yen

Thousands of
U.S. dollars(Note 3)

2005

2006

2006

¥ 20,130¥ 20,160$ 171,618

Current portion of long-term debt (Note 5)

2,263

13,756

117,102

Income taxes payable (Note 6)

49,93883,060707,074

Other current liabilities

50,57962,625533,115

122,910

179,601

1,528,909

Long-term debt (Note 5)

175,604

206,537

1,758,211

Deferred tax liabilities (Note 6)

25,81522,948

195,352

Accrued employees’ retirement benefits

1,504

1,719

14,634

Accrued officers’ retirement benefits

594

651

5,542

—

1,666

14,182

LIABILITIES AND SHAREHOLDERS’ EQUITY

51

Current liabilities:

INPEX

Accounts payable—tradeLong-term liabilities:

Liabilities for site restoration and decommissioning costs
Other

—

1,982

16,872

6,222

14,733

125,419

209,739

250,236

2,130,212

Total liabilities

332,649

429,837

3,659,121

Minority interests in consolidated subsidiaries

35,28337,603

320,108

29,46029,460250,787

TEIKOKU

Liabilities for losses on development activities

Shareholders’ equity (Note 7):
Capital stock:
Authorized: 2005 — 2,356,801 shares2006 — 2,356,799.56 shares2005 — 1,919,833.75 shares

DATA

Issued:2006 — 1,919,832.31 shares
Additional paid-in capital

62,40362,403531,225

Retained earnings

320,090415,734

3,539,065

375(3,717)(31,642)(1,031)

1,118

9,518

(1)

—

—

411,296504,998

4,298,953¥779,228¥972,438$8,278,182

Unrealized holding gain (loss) on securities
Translation adjustments
Less: Treasury stock: 2005 — 1 share
Total shareholders’ equity
Contingent liabilities (Note 12)
Total liabilities and shareholders’ equity

52 INPEX Holdings Inc.

Consolidated Statements of Income

INPEX

INPEX CORPORATION and Subsidiaries
For the years ended March 31, 2004, 2005 and 2006

Millions of yen

Thousands of
U.S. dollars(Note 3)

2004

2005

2006

2006

Net sales¥218,831¥478,587¥704,235$5,995,020

Cost of sales

105,759

197,094

257,904

2,195,488

Gross profit

113,072

281,493446,3313,799,532

Exploration expenses

11,552

2,474

5,521

46,999

5,314

8,718

10,211

86,924

Selling, general and administrative expenses(Notes 10 and 11)
Depreciation and amortization

2,330

1,638

3,948

33,609Operating income

93,876

268,663426,651

3,632,000

Interest income

1,575

4,060

9,742

82,932Foreign exchange gain

10,761———Gain on sales of mining rights

1,497

—

—

—

Equity in earnings of affiliates

453

—

1,347

11,467

1,217

678

1,183

10,07015,503

4,738

12,272

104,469

1,817

2,984

9,033

76,896

—

1,583

—

—

10,057518

3,642

31,004

746

1,607

405

3,448

—

—

1,584

13,484

TEIKOKU

Other income:

Other
Other expenses:
Interest expense
Equity in losses of affiliates
Provision for allowance for recoverable accounts
under production sharing
Amortization of exploration and development rights

DATA

Provision for site restoration anddecommissioning costs
Provision for losses on development activities

—

—

1,982

16,872

Provision for doubtful accounts

—

—

2,311

19,673

Amortization of goodwill

—

2,784

—

—

Foreign exchange loss

—

2,859

12,418105,712

Other

1,986

2,434

4,008

34,12014,606

14,76935,383

301,209

94,773

258,632

403,540

3,435,260

Current

55,081

187,405

312,519

2,660,416

Deferred

5,237(4,798)(13,862)(118,005)

60,318

182,607298,657

2,542,411

Income before income taxes and minority interests
Income taxes (Note 6):

Minority interests
Net income (Note 8)
See accompanying notes to consolidated financial statements.

(327)

(469)

1,406

11,969¥ 34,782¥ 76,494¥103,477$ 880,880

INPEX Holdings Inc.

53

Consolidated Statements of Shareholders’ Equity
INPEX CORPORATION and Subsidiaries
For the years ended March 31, 2004, 2005 and 2006

Millions of yen
Capitalstock

Balance at March 31, 2003

¥29,460

Additional
paid-in
capital¥Unrealized
Retained holding gain (loss)
earnings
on securities—¥220,853¥

Translation Treasury
adjustments
stock

Total
shareholders’equity410¥ 2,847¥—¥253,570——

34,782———

34,782

Cash dividends paid——

(5,892)———(5,892)

Bonuses to directors andstatutory auditors

—

—

(115)

—

—

—

(115)

Unrealized holding loss
on securities

—

—

—

(256)

—

—

(256)

Translation adjustments

—

—

—

—

(3,975)—(3,975)29,460—249,628

154(1,128)—278,114Purchase of treasury stock

—

—

—

—

—

(1)

(1)

Increase due to shareexchange transaction—

62,403————62,403

Net income——

76,494———76,494

Cash dividends paid——

(5,892)———(5,892)

Bonuses to directors andstatutory auditors

—

—

(140)

—

—

—

(140)
221

—

—

—

221

—

—

Translation adjustments

—

—

—

—

97

—

97

29,46062,403320,090375(1,031)(1)

411,296

Net income——

103,477———

103,477

Cash dividends paid——

(7,679)———(7,679)Bonuses to directors andstatutory auditors

—

—

(153)

—

—

—

(153)

Unrealized holding loss
on securities

—

—

—

(4,092)——(4,092)

Translation adjustments

—

—

—

—

2,149

—

2,149

Balance at March 31, 2005

Retirement of treasury
stock
Balance at March 31, 2006

—

—

(1)

—

—

1

—

¥29,460¥62,403¥415,734¥(3,717)¥ 1,118¥—¥504,998

Capitalstock

Additional
paid-in
capitalThousands of U.S. dollars (Note 3)
Unrealized
Retained holding gain (loss)
earnings
on securities

Balance at March 31, 2005 $250,787 $531,225 $2,724,866

Translation Treasury
adjustmentsstock$ 3,192$(8,776)

Total
shareholders’equity$(9) $3,501,285

Net income——

880,880———

880,880

Cash dividends paid——

(65,370)———(65,370)

Bonuses to directors andstatutory auditors——(1,302)———(1,302)

Unrealized holding loss
on securities

—

—

—

(34,834)——(34,834)

Translation adjustments

—

—

—

—

18,294—

18,294Retirement of treasury
stock

—

—

(9)

—

—

9

—

Balance at March 31, 2006 $250,787 $531,225 $3,539,065$(31,642)$ 9,518$—$4,298,953

See accompanying notes to consolidated financial statements.

DATA

Unrealized holding gain
on securities

TEIKOKU

Balance at March 31, 2004

INPEX

Net income

54 INPEX Holdings Inc.

Consolidated Statements of Cash FlowsDATATEIKOKU

INPEX

INPEX CORPORATION and Subsidiaries
For the years ended March 31, 2004, 2005 and 2006

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 (reversal of) recoverable accounts
under production sharing
Provision for accrued retirement benefits
Provision for losses on development activities
Provision for site restoration and decommissioning costs
Interest and dividend income
Interest expense
Foreign exchange loss (gain)
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—trade
Other receivables
Accounts payable—other
Long-term accounts payable
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:
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
Increase in short-term loans receivable
Long-term loan made
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 (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents due to a share exchange transaction(Note 13)
Cash and cash equivalents at end of year
See accompanying notes to consolidated financial statements.

Millions of yen

Thousands of
U.S. dollars(Note 3)

2004

2005

2006

2006

¥ 94,773
4,049
169
123

¥ 258,632
12,9602,868
480¥ 403,540
16,065—
2,284$ 3,435,260
136,758—
19,443

11,284(141)——(1,711)
1,816(11,980)(452)(1,497)(2,521)

573
204
—
—
(4,204)
2,984
(474)
1,583
—
(20,807)

3,665
272
1,982
1,584
(10,035)
9,033
11,031(1,347)—(6,758)31,1992,316
16,872
13,484(85,426)
76,896
93,905(11,467)—(57,530)

21,74438,37562,331

530,612(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(4,869)(1,853)30(12,865)
19,7504,604(5,494)(155)
952
493,747
10,127(8,102)(277,532)
218,240(41,449)(15,774)
255(109,517)
168,128
39,193(46,769)(1,319)8,105
4,203,175
86,209(68,971)(2,362,577)
1,857,836

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)—————

18,300(9,091)
9(144,693)
2,247(109,411)(4,236)(1,645)———

155,784(77,390)77(1,231,744)
19,128(931,395)(36,060)(14,004)
—
—
—

3,992
2,143
(218,121)—(4,140)(119,956)—(3,880)(252,400)—(33,030)(2,148,634)

136,028(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)
17,89954,58249,431(27,231)
1,109(7,679)(79)(1,200)——14,351
6,402(13,407)
128,375

420,797(231,812)
9,441(65,370)(673)(10,215)——
122,168
54,499(114,131)
1,092,832—¥ 54,582

55,894¥ 128,375—¥ 114,968$—
978,701

INPEX Holdings Inc.

55

Notes to Consolidated Financial Statements
INPEX CORPORATION and Subsidiaries

1

BASIS OF PRESENTATION
The accompanying consolidated financial statements

engaged in the exploration, development and produc-

have been prepared in accordance with accounting

tion of natural gas and crude oil.

principles generally accepted in Japan, which may dif-

The Company and its domestic subsidiaries main-

fer in certain material respects from accounting princi-tain their accounting records and prepare their finan-

ples generally accepted in the United States ofcial statements in accordance with accounting

America, and are compiled from the consolidated

principles generally accepted in Japan, and its over-financial statements prepared by the Company asseas subsidiaries maintain their books of account inrequired by the Securities and Exchange Law of Japan.

INPEX

INPEX CORPORATION (the “Company”) is primarily

conformity with those of their countries of domicile.

2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

investments in affiliatesof this change on the consolidated statement of operations was to increase net sales by ¥22,295 million

The accompanying consolidated financial statements($189,793 thousand), operating income by ¥9,548

include the accounts of the Company and companies

million ($81,280 thousand), income before income

controlled directly or indirectly by the Company.

taxes and minority interests by ¥9,788 million

Companies over which the Company exercises signifi-($83,323 thousand), and net income by ¥2,885 million

cant influence in terms of their operating and financial($24,559 thousand), for the year ended March 31,

policies are included in the consolidated financial

2006 compared with the corresponding amounts

statements on an equity basis. All significant inter-

which would have been recorded if the previous

company balances and transactions are eliminated inmethod had been followed. The excess of cost overconsolidation.

underlying net assets at fair value as of their datesof acquisition is amortized over a period of less than
20 years on a straight-line basis. In the year ended

which differ from that of the Company; however, theMarch 31, 2005, the goodwill previously recorded wassignificant effect of the difference in fiscal periods has

fully written off because the analysis of subsequent

been properly adjusted in consolidation. The financial

investment results of goodwill revealed that the goodwill

statements of Japan Oil Development Co., Ltd., whose

has no future value.

fiscal periods ended December 31, were prepared for(b) Cash equivalents

consolidation purpose as of the consolidated closing

All highly liquid investments with a maturity of threedate.

months or less when purchased are considered cash

Until the year ended March 31, 2005, INPEX

equivalents.

Southwest Caspian Sea, Ltd. and INPEX North CaspianSea, Ltd. were consolidated on the basis of fiscal periods ended December 31, which differ from that of theCompany. Commencing in the year ended March 31,
2006, however, due to the increase in their materiality,
their financial statements prepared for consolidation
purpose as of the consolidation closing date have beenused. Accordingly, the consolidated operating results
for the year ended March 31, 2006 included operating
results for 15 months from January 1, 2005 to March 31,
2006 for those consolidated subsidiaries. The effect(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 aretranslated at the rates of exchange prevailing whensuch transactions 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

DATA

Most of the Company’s subsidiaries are consolidated on the basis of fiscal periods ending December 31,

TEIKOKU(a) Principles of consolidation and accounting for

INPEX

56 INPEX Holdings Inc.

exchange in effect at the balance sheet date. Except

Because these investments are recoverable only

for the components of shareholders’ equity, the bal-

where commercial oil or gas is discovered, anance sheet accounts are also translated into yen at theallowance for recoverable accounts under production

rates of exchange in effect at the balance sheet date.

sharing is provided for probable losses on investments

The components of shareholders’ equity are translated

made during the exploration phase under production

at their historical exchange rates. Translation adjust-sharing contracts arising from the failure to discoverments are presented as components of shareholders’commercial oil and gas. This allowance is stated at anequity and minority interests in the accompanying con-amount based on an assessment of the recoverability

solidated financial statements.

of the investment in each respective project.

(d) Securities(h) Allowance for investments in exploration

In general, securities are classified into three cate-

The allowance for investments in exploration is provid-gories: trading, held-to-maturity or other securities.

ed for future potential losses on investments in explo-

Securities held by the Company and its subsidiaries

ration companies at an estimated amount based on theare all classified as other securities. Other securities

net assets of the investees.

TEIKOKU

with a determinable market value are mainly stated atfair value with any changes in unrealized holding gainor 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.

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(e) Inventories

straight-line method, at rates based on the estimatedInventories are mainly stated at cost determined by theuseful lives of the respective assets.

average method.
DATA(i) Tangible fixed assets(j) Intangible fixed assets(f) Allowance for doubtful accounts

Exploration and development rights at the exploration

The allowance for doubtful receivables is provided atstage are fully amortized in the year such rights are

an amount determined based on the historical experi-

acquired and those at the production stage are amor-

ence of bad debt with respect to ordinary receivables,

tized by the unit-of-production method.

plus an estimate of uncollectible amounts determinedby reference to specific doubtful receivables from customers which are experiencing financial difficulties.
(g) Recoverable accounts under production sharing
and related allowance

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

Cash investments made by the Company during explo-

straight-line method.

ration, development and production phases under a(k) Accrued retirement benefits

production sharing contract and a service contract

The Company and most of its subsidiaries have(buyback arrangement) are recorded as “Recoverable

defined benefit plans, i.e., lump-sum payment plansaccounts under production sharing” so long as they

and/or multi-employer pension fund plans, covering

are recoverable under the terms of the relevant con-substantially all employees, the amounts of which aretract. When the Company receives the natural gas anddetermined by reference to their basic rates of pay,

crude oil in accordance with the contract, an amountlength of service, and the conditions under which ter-corresponding to the purchase costs of the products

mination occurs.

(i.e., a cost recovery portion of the investments) isreleased from this account.

Accrued retirement benefits for employees are provided at the amount which would be required to be

INPEX Holdings Inc.

paid if all active employees voluntarily terminated theirchanges in the situation of projects such as delay inemployment as of the balance sheet date.

development.

In addition, directors and statutory auditors of the57(n) Leases
Non-cancelable leases are primarily accounted for as

customarily entitled to lump-sum payments under theiroperating leases except that lease agreements which

respective unfunded retirement benefits plans. The

stipulate the transfer of ownership of the leased assets

provision for retirement benefits for these officers has

to the lessee are accounted for as finance leases.

INPEX

Company and certain consolidated subsidiaries are

been made at an estimated amount.
(o) Research and development expenses(l) Liabilities for site restoration anddecommissioning costs

Research and development expenses are charged toincome as incurred.

Liabilities for site restoration and decommissioning
costs are provided for expected future costs for decommissioning oil and gas production facilities, related
pipelines and wells.
Until the year ended March 31, 2005, the cost of
related pipelines and wells was recognized as expense
on a cash basis. Effective the year ended March 31,

Deferred tax assets and liabilities are determinedbased on the differences between financial reporting
and the tax bases of the assets and liabilities and aremeasured using the enacted tax rates and laws which
will be in effect when the differences are expected toreverse.

2006, the Company changed its accounting policy to(q) Appropriation of retained earnings

recognize liabilities for the estimated amount of future

Under the Commercial Code of Japan, the appropria-

decommissioning costs because such costs estimatedtion of retained earnings with respect to a given finan-

based on the future decommissioning plans arecial period is made by resolution of the shareholders at

expected to be material. The effect of this change wasa general meeting to be held subsequent to the close

to decrease income before income taxes and minorityof such financial period. The accounts for that periodinterests by ¥1,584 million ($13,484 thousand).

do not, therefore, reflect such appropriations. See
Notes 7 and 15.

Liabilities for losses on development activities are provid-(r) Adoption of new accounting standard

ed for provable losses on oil and natural gas develop-

Effective April 1, 2005, the Company has adopted ament activities individually estimated for each project.

new accounting standard for the impairment of

The Company commenced to record such liabilities

fixed assets.

effective the year ended March 31, 2006, considering

3

U.S. DOLLAR AMOUNTS
The translation of yen amounts into U.S. dollar

on March 31, 2006. This translation should not beamounts is included solely for convenience, as a mat-construed as a representation that yen have been,

ter of arithmetic computation only, at ¥117.47 =could have been, or could in the future be, converted

US$1.00, the approximate rate of exchange in effectinto U.S. dollars at the above or any other rate.

DATA(m) Liabilities for losses on development activities

TEIKOKU

decommissioning oil and gas production facilities,(p) Income taxes

58 INPEX Holdings Inc.

4

SECURITIESa) Information regarding other securities with determinable market value as of March 31, 2005 and 2006
is as follows:

INPEX

Millions of yen
Acquisition
cost

Carrying
value

Gross
unrealized
gains (losses)

Other

¥
287
76,227500¥
392
76,527
863

¥105
300
363

Subtotal

77,01477,782

768

March 31, 2005

Securities whose fair value exceeds
their acquisition cost:

Stock
Debt securities

Securities whose acquisition cost exceeds
their fair value:
Debt securities

TEIKOKU

17,266

17,247(19)

Subtotal

17,266

17,247

(19)

Total

¥94,280¥95,029¥749
Millions of yen

DATA

March 31, 2006

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

Thousands of U.S. dollars

Acquisition
cost

Carrying
value

Gross
unrealized
gains (losses)

Acquisition
cost

Carrying
value

Gross
unrealized
gains (losses)¥ 19,907
17,214500
37,621¥ 22,187
17,246
1,139
40,572¥ 2,280
32
639
2,951

$ 169,465
146,540
4,256
320,261$ 188,874
146,812
9,696
345,382$ 19,409272
5,440
25,121

173,992
173,992¥211,613

167,777
167,777¥208,349(6,215)(6,215)¥(3,264)

1,481,161
1,481,161$1,801,422

1,428,254
1,428,254$1,773,636(52,907)(52,907)$(27,786)b) Information regarding sales of securities classified as other securities for the years ended March 31, 2004,
2005 and 2006 is as follows:
Millions of yen

Thousands of
U.S. dollars

Year ended March 31,

2004

2005

2006

2006

Proceeds from sales¥24,391¥23,939¥20,547$174,913

Gain on sales

63

—

—

—

Loss on sales

—

—

141

1,200

c) The components of other securities without a determinable market value at March 31, 2005 and 2006 aresummarized as follows:
Thousands ofYear ended March 31,

2005

Millions of yen

U.S. dollars

2006

2006

Other securities:
Unlisted securities*
Total¥23,493¥27,528$234,341¥23,493¥27,528$234,341*An allowance is provided for investments in exploration companies at an estimated amount based on the financial position of the investees.

INPEX Holdings Inc.

59d) The redemption schedule for securities with maturity dates classified as other securities at March 31, 2006 is
as follows:
Millions of yen

1 year or
lessMore than
10 years¥80,441¥81,118

Thousands of U.S. dollars

1 year or
lessMore thanMore than 1
5 years
year but less but less than
than 5 years
10 yearsMore than
10 years

Debt securities:
Public bonds
Corporate bonds
Total

5

¥17,500¥1,946

4,018

—

—

—

¥21,518¥80,441¥1,946¥81,118$148,974 $684,779
34,205—$183,179 $684,779

INPEX

March 31, 2006

More thanMore than 1
5 years
year but less but less than
than 5 years
10 years$16,566 $690,542——$16,566 $690,542

LONG-TERM DEBT
Long-term debt at March 31, 2005 and 2006 consisted of the following:Thousands of
U.S. dollars

2005

2006

2006

¥177,867¥220,293$1,875,313

Loans from banks and others, at interest rates ranging
from 1.420% to 5.880%, due through 2019:
Less: Current portion

2,263

13,756

117,102¥175,604¥206,537$1,758,211

TEIKOKU

March 31,

Millions of yen

Assets pledged at March 31, 2005 and 2006 were as follows:
Thousands ofMarch 31,

Other current assets (restricted cash)
Total

U.S. dollars

2005

2006

2006

¥ 8,200¥ 9,400$ 80,020

2,636

5,103

43,441¥10,836¥14,503$123,461

Millions of yen

Thousands of
U.S. dollars

2005

2006

2006

¥92,597¥94,070$800,800

8,462

7,663

65,234

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, 2006 are summarized asfollows:
Millions of yen

Thousands of
U.S. dollars

2007¥ 13,756$ 117,102

2008

43,594

371,1072009

14,096

119,9972010

14,096

119,997

Year ending March 31,

2011

14,096

119,997

2012 and thereafter¥120,655$1,027,113

Total¥220,293$1,875,313

DATA

Investment securities

Millions of yen

60 INPEX Holdings Inc.

INPEX

6

INCOME TAXESThe Company and its domestic consolidated subsidiaries

The effective tax rates reflected in the consolidated

are subject to a number of taxes based on income

statements of income for the years ended March 31,

which, in the aggregate, resulted in a statutory tax rate

2004, 2005 and 2006 differ from the statutory tax rateof approximately 36.2% in 2004, 2005 and 2006.

for the following reasons:Year ended March 31,

2004

2005

2006

Statutory tax rate

36.2%

36.2%

36.2%

TEIKOKU

Effect of:Permanent differences

0.1

—

(0.1)

Change in valuation allowance

0.7

3.3

3.6

Foreign tax credits(29.5)(15.3)(16.2)

Foreign taxes

54.0

70.4

71.7

Equity in earnings of affiliates

(0.6)

(0.6)

(0.3)

—

(19.4)(17.5)

Operating losses used during this fiscal year

—

(4.4)

(3.5)

Other

2.7

0.4

0.1

63.6%

70.6%

74.0%

Adjustment of deducted amounts of foreign taxes

Effective tax rates

The significant components of deferred tax assets and liabilities at March 31, 2005 and 2006 were as follows:

March 31,

Millions of yen

Thousands of
U.S. dollars

2005

2006

2006

¥ 28,077¥ 32,851$ 279,654

4,543

4,543

38,674—

5,381

45,807

7,123

10,98893,539DATA

Deferred tax assets:
Investments in related parties
Loss on revaluation of land
Accounts payable—other
Recoverable accounts under production sharing (Foreign taxes)
Allowance for investments in exploration

3,277

1,913

16,285

Foreign taxes payable

13,038

23,107

196,706

Net operating loss

16,2483,622

30,833

Accumulated amortization of tangible fixed assets

1,012

1,339

11,399

726

814

6,929

6,732

7,263

61,829Accrued retirement benefits
Translation differences of asset and liabilities denominatedin foreign currencies

5,180

3,692

31,429Total gross deferred tax assets

Other85,956

95,513

813,084

Valuation allowance(76,712)(79,472)(676,530)

9,244

16,041

136,554

Foreign taxes

26,01424,076

204,954

Translation differences of asset and liabilities denominatedin foreign currencies

5,049

—

—

Other

3,792

3,632

30,919Total deferred tax assets
Deferred tax liabilities:

Total deferred tax liabilities

34,85527,708235,873

Net deferred tax liabilities¥ 25,611¥ 11,667$ 99,319

INPEX Holdings Inc.

7

SHAREHOLDERS’ EQUITY
provides that an amount equal to at least 10% of theCompany’s shares issued consisted of 1,919,831.31

amount to be disbursed as distributions of earnings beshares of common stock and one special class share.

appropriated to the legal reserve until the total of such

The special class share has no voting rights at thereserve and the additional paid-in capital accountcommon shareholders meeting, but the ownership ofequals 25% of the capital stock account. The legal

the special class share gives its holder a veto right overreserve amounted to ¥7,365 million and ¥7,365 million

the following certain important matters by imposing($62,697 thousand), respectively, at March 31, 2005

the requirement to obtain a class vote. However,and 2006.
The Code provides that neither additional paid-in

are necessary in the case of the appointment andcapital nor the legal reserve is available for dividends,

removal of directors, disposition of important assets or

but both may be used to reduce or eliminate a deficit

the exercise of the veto;by resolution of the shareholders or may be transferred• Appointment and removal of directors

to capital stock by resolution of the Board of Directors.

• Disposition of all or part of the material assets

The Code also provides that if the total amount of addi-• Amendments to the Article of Incorporation withtional paid-in capital and the legal reserve exceeds

respect to (i) the purpose of the Company’s business

25% of the amount of capital stock, the excess may beand (ii) the granting of voting rights to the Company’s

distributed to the shareholders either as a return ofshares other than common stock

capital or as dividends, subject to the approval of theshareholders.
The new Corporation Law of Japan (the “Law”),• Capital reduction

which superseded most of the provisions of the Code,• Dissolution

went into effect on May 1, 2006. The Law stipulates

The special class share will be redeemed uponrequirements on distribution of earnings which arerequest by the relevant special class shareholder.
In accordance with the Commercial Code of Japan (thesuch distributions can be made at any time by resolu-“Code”), the Company has provided a legal reserve,tion of shareholders, or the Board of Directors if certain

which is included in retained earnings. The Codeconditions are met.

AMOUNTS PER SHARE

Year ended March 31,

Yen

U.S. dollars

2004

2005

2006

2006

$ 458.11¥ 58,838.76¥ 40,255.92¥ 53,814.47

Cash dividends

10,000.00

4,000.00

5,500.00

46.82

Net assets

471,826.00

214,163.98

262,966.53

2,238.58

Net income per share is computed based on the net

based on the net assets available for distribution to theincome available for distribution to shareholders ofshareholders and the number of shares of common

common stock and the weighted-average number ofstock outstanding at the year end.

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

The Company made a three-for-one stock split of
the Company’s common stock effective May 18, 2004
that resulted in an increase of 1,279,888.50 shares of
the Company’s common stock.

DATA

similar to those of the Code. Under the Law, however,

Net income

TEIKOKU

requirements stipulated in the Articles of Incorporation

INPEX

As of March 31, 2006, the total number of the• Mergers, share exchange or share transfer

861

62 INPEX Holdings Inc.

Had this stock split been made as of April 1, 2003, amounts per share information for the year ended March 31
2004 would have been as follows:
Yen

INPEX

Year ended March 31,

2004

Net income¥ 19,612.92

Cash dividends

3,333.33

Net assets

TEIKOKU

9

157,275.33

DERIVATIVES(a) Hedging policies

material because the Company enters into transactions

During the year ended March 31, 2006, the Company

only with financial institutions or trading companies

has entered into forward foreign exchange contracts inwith high credit ratings.

order to reduce its exposure to foreign currency risk(c) Risk managementfrom its assets and liabilities denominated in foreign

The execution and control of derivative transactions are

currencies. The Company does not engage in deriva-

based on internal rules. All transactions are reported totive transaction for trading purposes. Also, Nominal

director in charge on timely basis and confirmations ofamounts for transactions are limited to amounts oftransactions are obtained from counterparties on aassets and liabilities at market risk.

regular basis.

(b) Credit risk(d) Fair value of derivatives

The Company is exposed to credit risk in the event

No derivatives positions remained outstanding atof nonperformance by the counterparties to those

March 31, 2005 or 2006.

DATA

derivative transactions, but any such loss would not be

10

RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses included in selling,

for the years ended March 31, 2004, 2005 and 2006,

general and administrative expenses amounted to ¥56

respectively.

million, ¥53 million and ¥51 million ($434 thousand)

11

12

RETIREMENT BENEFIT EXPENSES
Retirement benefit expenses for employees amounted

thousand) for the years ended March 31, 2004, 2005

to ¥103 million, ¥220 million and ¥308 million ($2,622

and 2006, respectively.

CONTINGENT LIABILITIESAt March 31, 2006, the Company and its consolidated

In addition, INPEX BTC Pipeline, Ltd. a consolidat-

subsidiaries were contingently liable as guarantors ofed subsidiary, was contingently liable as guarantor ofindebtedness of affiliates in the aggregate amount of

indebtedness of BTC Pipeline Project Finance in the¥9,323 million ($79,365 thousand).

amount of ¥7,207 million ($61,040 thousand) at
December 31, 2005.

INPEX Holdings Inc.

13

63

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

Current assets¥ 13,916

Long-term assets

2,539

Current liabilities(34)

Minority interests(2,526)

Minority interests in consolidated subsidiaries(5,126)

Purchase of stock

8,769

Cash and cash equivalents held by subsidiaries(12,761)

Net proceeds¥ 3,992

Caspian Sea, Ltd. during the year ended March 31, 2004 is as follows:

Current assets
Long-term liabilities

Millions of yen¥

5
164,494

Current liabilities
Purchase of mining rights

TEIKOKUb) Summary of the increase in assets and liabilities following the acquisition of interests by INPEX Southwest

March 31, 2004

INPEX

March 31, 2004

(988)¥(163,511)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:
Millions of yen

Current assets¥

Long-term liabilities

1,737

21

Current liabilities(203)

Net assets of business sold

1,555

Gain on sales of mining rights

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

Current assets¥ 79,502

Long-term assets

53,682

Total assets

133,184

Current liabilities

46,146Long-term liabilities
Total liabilities

24,635¥ 70,781e) Significant non-cash transaction: Increase in paid-in capital in the amount of ¥62,403 million due to the shareexchange transaction during the year ended March 31, 2005.

DATA

March 31, 2004

64 INPEX Holdings Inc.

INPEX

14

SEGMENT INFORMATIONThe Company and its subsidiaries are primarily

ended March 31, 2004, 2005 and 2006, the disclosure

engaged in the joint exploration, development and pro-of business segment information has been omitted.

duction of natural gas and crude oil in Indonesia, theThe geographical segment information for the

Middle East, Oceania, the Caspian Sea and certain

Company and its subsidiaries for the years ended

other areas. As net sales, operating income and total

March 31, 2004, 2005 and 2006 is summarized asassets of the oil and natural gas business constituted

follows:

more than 90% of the consolidated totals for the years
Millions of yen
Year ended March 31, 2004

AsiaOceania (a)Sales to third parties¥211,422

TEIKOKU

Intergroup sales and transfers
Total sales¥

NIS (b)

Other
(c)

Total

—

¥7,409¥218,831

Eliminations Consolidated¥— ¥218,831

—

6,506

—

6,506

(6,506)—211,422

6,506

7,409

225,337(6,506)

218,831(6,665)

124,955

Operating expenses

121,426

4,754

5,440

131,620

Operating income¥ 89,996¥

1,752¥1,969¥ 93,717¥

Total assets¥214,325¥191,697¥6,412¥412,434¥112,864 ¥525,298

NIS (b)Middle East(c)

Other (d)¥159 ¥ 93,876(a) Asia-Oceania: Indonesia, Australia, East Timor(b) NIS: Kazakhstan, Azerbaijan(c) Other: UAE, Iran

DATA

Millions of yen
Year ended March 31, 2005

AsiaOceania (a)Sales to third parties¥287,185

Eliminations Consolidated—¥191,402—¥478,587—

20,900414—

21,314(21,314)—

Total sales

287,185

20,900191,816—

499,901(21,314)478,587

Operating expenses

150,825

16,472

63,9773

231,277(21,353)

209,924

Operating income¥136,360¥

4,428¥127,839¥(3)¥268,624¥

Total assets¥236,647¥223,532¥179,413¥4,228¥643,820¥135,408 ¥779,228

Year ended March 31, 2006

AsiaOceania (a)NIS (b)Middle East(c)

Other (d)Sales to third parties¥339,524¥ 63,767¥300,944¥

Intergroup sales and transfers

¥

Total

¥

— ¥478,587

39 ¥268,663(a) Asia-Oceania: Indonesia, Australia, East Timor(b) NIS: Kazakhstan, Azerbaijan(c) Middle East: UAE, Iran(d) Other: Angola, Brazil

Millions of yen

Intergroup sales and transfers
Total sales

—

Total

¥704,235

Eliminations Consolidated¥— ¥704,235

—

—

—

—

—

—

—

339,524

63,767300,944—704,235—

704,235(105)

277,584

Operating expenses

146,747

40,20090,7384

277,689

Operating income¥192,777¥ 23,567¥210,206¥(4)¥426,546¥

Total assets¥244,575¥290,996¥239,214¥4,744¥779,529¥192,909 ¥972,438(a) Asia-Oceania: Indonesia, Australia, East Timor(b) NIS: Kazakhstan, Azerbaijan(c) Middle East: UAE, Iran(d) Other: Angola, Brazil, Libya

105 ¥426,651

INPEX Holdings Inc.

65

Thousands of U.S. dollars
Year ended March 31, 2006

AsiaOceania (a)Sales to third parties$2,890,304 $ 542,836 $2,561,880

Intergroup sales and transfers

NIS (b)Middle East(c)

Other (d)

$

Total

—

$5,995,020——

Eliminations Consolidated$—$5,995,020

—

—

—

—

Total sales

2,890,304

542,836

2,561,880—

5,995,020—

5,995,020

Operating expenses

1,249,230

342,215

772,43633

2,363,914(894)

2,363,020

Operating income$1,641,074 $ 200,621 $1,789,444

$

(33)

$3,631,106$

894$3,632,000

Total assets$2,082,021 $2,477,194 $2,036,384$40,385$6,635,984$1,642,198$8,278,182

INPEX

—

(a) Asia-Oceania: Indonesia, Australia, East Timor(b) NIS: Kazakhstan, Azerbaijan(c) Middle East: UAE, Iran(d) Other: Angola, Brazil, Libya
The geographical segment information for the Company and its subsidiaries has been reflected in the regions based on the location of operations. Since
INPEX Trading, Ltd., a subsidiary of the Company, which is engaged in purchase and sale of crude oil price of the Company and consolidated subsidiaries,
does not deal in oil productions activities, operating results of INPEX Trading, Ltd. had been reflected in Asia-Oceania segment where substantially all of its
reflected in the segments based on the location of the Company and consolidated subsidiaries which INPEX Trading, Ltd. purchase the crude oil.
As a result, there were no intercompany sales and transfers between segments since all intercompany sales are recorded within the same segment. The
effect of this change on the geographical segment information for the years ended March 31, 2005 and 2004 was immaterial.

TEIKOKU

oil for trading are provided until the year ended March 31, 2005. Effective April 1, 2005, operating results and assets of INPEX Trading, Ltd. have beenOverseas sales
Overseas sales, which include sales (other than exports to Japan) of its overseas subsidiaries, for the years ended
March 31, 2004, 2005 and 2006 are summarized as follows:
Millions of yen
Year ended March 31, 2004

Overseas sales

Other (b)Total¥58,089¥6,257¥ 64,346

26.5%

2.9%

Asia (a)Other (b)Total¥167,741¥11,299¥179,040

35.0%

2.4%

Consolidated net sales

218,831

Overseas sales as a percentage of consolidated net sales

29.4%(a) Asia: Korea, Taiwan, Indonesia, Singapore(b) Other: Australia

Millions of yen
Year ended March 31, 2005

Overseas sales
Consolidated net sales

478,587

Overseas sales as a percentage of consolidated net sales

37.4%(a) Asia: Korea, Taiwan, Indonesia, Singapore, Thailand, China(b) Other: Australia

Millions of yen
Year ended March 31, 2006

Overseas sales

Other (b)Total

Asia (a)¥249,027¥45,961¥294,988$2,119,920

Consolidated net sales
Overseas sales as a percentage ofconsolidated net sales

Other (b)

35.4%

6.5%

41.9%

Total

$391,257 $2,511,177

704,235(a) Asia: Korea, Taiwan, Indonesia, Singapore, Thailand, China, Malaysia(b) Other: Australia, Italy

Thousands of U.S. dollars

Asia (a)5,995,020
35.4%

6.5%

41.9%

DATA

Asia (a)66 INPEX Holdings Inc.

INPEX

15

SUBSEQUENT EVENTS(a) The Company and Teikoku Oil Co., Ltd. reachedClass Shareholder’s meeting, all held on January 31,

agreement on the integration of the two companies and2006, INPEX Holdings Inc. was established as the solesigned a joint stock transfer agreement on November 5,parent company on April 3, 2006. Accordingly, the2005. After approval of “Establishment of the Parent

Company became a wholly-owned subsidiary of INPEX

Company through a Stock Transfer” at their respective

Holdings Inc.

extraordinary shareholders’ meetings and a Special
An overview of the parent company is summarized as follows:

TEIKOKU(As of April 3, 2006)
Company’s name:

INPEX Holdings Inc.

Company’s headquarters:

4-1-18 Ebisu, Shibuya-ku, Tokyo, 150-0013, Japan

Date of establishment:

April 3, 2006

Main business:

Management and administration of subsidiaries and group companies

Capital:¥30 billion

Representative Director and President: Naoki Kuroda(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, 2006, were approved at a general meeting of
the shareholders held on June 27, 2006.

Cash dividends (¥5,500 = $46.82 per share)

DATA

Bonuses to directors and statutory auditors

Millions of yen

Thousands of U.S. dollars¥10,559$89,887

98

834

INPEX Holdings Inc.

67

Report of Independent Auditors

INPEX

Report of Independent Auditors
The Board of Directors and Shareholders
INPEX CORPORATION

We conducted our audits in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

Supplemental Information
1.

As described in Note 2(1), effective April 1, 2005, the Company changed its method of
accounting for site restoration and decommissioning costs.

2.

As described in Note 15(a), on April 3, 2006, the Company became a wholly-owned
subsidiary of INPEX Holdings Inc., which was established in accordance with a joint
stock transfer agreement between the Company and Teikoku Oil Co., Ltd.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect
to the year ended March 31, 2006 are presented solely for convenience. Our audit also
included the translation of yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made on the basis described in Note 3 to the consolidated financial
statements.

Tokyo, Japan
June 27, 2006

DATA

In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of INPEX CORPORATION and subsidiaries at
March 31, 2005 and 2006, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended March 31, 2006 in conformity with accounting
principles generally accepted in Japan.

TEIKOKU

We have audited the accompanying consolidated balance sheets of INPEX CORPORATION
and subsidiaries as of March 31, 2005 and 2006, and the related consolidated statements ofincome, shareholders’ equity, and cash flows for each of the three years in the period ended
March 31, 2006, all expressed in yen. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.

INPEX Holdings Inc.

TEIKOKU
Financial Section
INPEX

+

69

TEIKOKU

Contents
70

Consolidated Balance Sheets

74

Consolidated Statements of Income

76

Consolidated Statements of Shareholders’ Equity

77

Consolidated Statements of Cash Flows78

Notes to Consolidated Financial Statements

79

Report of Independent Auditors

93* Consolidated Balance Sheets

94* Consolidated Statements of Income

95* Consolidated Statements of Shareholders’ Equity

96* Consolidated Statements of Cash Flows97* Due to the change of Teikoku Oil’s accounting period to reflect the
fiscal year ended March 31, 2006, financial information was
readjusted using the Company’s quarterly earnings report for January 1,
2006 through March 31, 2006.
The translation of yen amounts into U.S. dollar amounts is
included solely for convenience and has been made, as a matter ofarithmetical computation only, at the rate of ¥117=U.S.$1.00, theapproximate rate of exchange on March 31, 2006. The 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. dollar
at that or any other rate.

DATA

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

70 INPEX Holdings Inc.

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

TEIKOKU

INPEX

Analysis of Results of Operations
Scope of Consolidationfrom Japan National Oil Corporation during the fiscal

In terms of the scope of consolidation for the fiscal

year under review.

year ended December 31, 2005, 27 subsidiaries
were fully consolidated (an increase of two consoli-

Financial Results

dated subsidiaries from the previous year), while

Consolidated net sales for the period increased byequity in one affiliate was accounted for under the¥16,684 million (+19.9% YoY) to ¥100,716 million.

equity method (remaining the same as the previous

Operating income jumped ¥7,544 million (+55.7%)

fiscal year).

to ¥21,077 million, while income before income

The newly consolidated subsidiaries included

taxes and minority interests surged ¥9,446 million

Teikoku Oil Ecuador, Teikoku Oil Suez SOB,(+56.6%) to ¥26,122 million. Net income increased

Teikoku Oil Nile NQR, and Teikoku Oil Libya UK¥6,209 million (+66.9%) to ¥15,485 million.

Ltd. Meanwhile, Teikoku Oil (Sanvi-Guere) and
Teikoku Oil Suez KEZ were excluded from the scope

Net Salesof consolidation due to the merger with Teikoku Oil

By segment, consolidated sales in the Oil and Gas(Venezuela) and the completion of liquidation,

Business grew by ¥16,597 million (+20.3% YoY) to

respectively.

¥98,406 million, while sales in Other Businesses

DATA

edged up ¥88 million (+4.0%) to ¥2,310 million.

Impact on Results from the Purchase of Stock
Owned by Japan National Oil Corporation(A) Natural Gas

Teikoku Oil acquired stocks held by Japan National

The sales volume of natural gas increased by 743

Oil Corporation in Egyptian Petroleum Development,

MM m3 year on year to 1,685 MM m3, while sales

Teikoku Oil (Venezuela), Teikoku Oil (Sanvi-Guere)

value climbed by ¥3,470 million to ¥38,004 million.

and Teikoku Oil (D.R. Congo) in the previous fiscal

Sales by major company were as follows.

year. Due to the timing of these purchases, the impact
on consolidated results is described as follows.

Teikoku Oil’s sales volume grew by 64 MM m3
to 902 MM m3, with city gas companies accounting

The purchase date of the stock in Egyptian

for 43 MM m3 and direct sales to factories and other

Petroleum Development was considered as the firstusers accounting for 21 MM m 3 . Despite theday of the second half of Teikoku Oil’s fiscal

decrease in sales volume due to the discontinuationaccounting year (July 1, 2004) for accounting pur-of supply to Tokyo Gas’ Utsunomiya branch inposes, meaning that the financial contribution of

October 2004, the Company’s efforts toward sales

this subsidiary was reflected in the second half of

expansion and shifting demand from other fuels tothe previous fiscal year. As the effective accounting

the Company’s natural gas, due to high crude oildate for the purchase of Teikoku Oil (Venezuela),

prices, contributed to the result.

Teikoku Oil (Sanvi-Guere) and Teikoku Oil (D.R.

Teikoku Oil included the sales of its Venezuela

Congo) stock was the fiscal year-end of December 31,

project subsidiaries in the consolidated financial

2004, these transactions impacted consolidated

statements from the fiscal year under review,

results of operations from the fiscal year ended

including revenues based on the operating service

December 31, 2005. There was no stock purchaseagreements for the reactivation of oil and gas fields

INPEX Holdings Inc.

in Venezuela. Natural gas consolidated sales volume

Overall sales in Other Oil and Gas Businesses

during the fiscal year totaled 682 MM m , and net

improved by ¥213 million to ¥1,234 million fromsales amounted to ¥2,075 million.

the previous fiscal year, due to sales recorded in3other services and products including petroleum

Venezuela project subsidiaries declined by ¥0.85

product storage, inbound and outbound shipping,

per cubic meters, reflecting a normal review of unittransportation, and instrument sales.

INPEX

Consolidated average unit prices excluding

71

pricing and larger growth in sales to large-volumeusers. In addition, as unit prices for Teikoku Oil are(D) Other Businesses

fixed annually in individual contract negotiations with

Other Businesses consist of real estate rental, man-users, there is no short-term impact from market oragement and transactions, civil engineering andexchange rate fluctuations.

well drilling, and warehousing. Consolidated sales inthis segment grew by ¥88 million to ¥2,310 million,(B) Oilprimarily owing to an increase in orders received forConsolidated oil sales improved by 932 Mbbls tocivil engineering.

¥7,483 million to ¥17,702 million. Sales volume

Operating Expenses and Operating Income

was down by 702 Mbbls to 1,724 Mbbls due to a

Cost of sales increased by ¥7,018 million to

decrease in Teikoku Oil (D.R. Congo) tanker ship-¥55,473 million, reflecting the cost of sales from thements of two tankers to a total of five. Meanwhile,

Venezuela project subsidiaries and increased pur-Egyptian Petroleum Development recorded a fullchases of petroleum products and crude oil due toyear of sales, recording an increase of 374 Mbbls tohigh crude oil prices.
Exploration expenses decreased ¥242 million

Venezuelan project subsidiaries, which were included

from the previous fiscal year to ¥4,097 million.

in the Company’s scope of consolidation from theDomestic exploration expenses excluding exploration

fiscal year under review, stood at 1,267 Mbbls.

subsidies were down by ¥581 million to ¥2,904 mil-

The average unit price per barrel sold waslion, and overseas exploration expenses for consoli-

US$51.36 for Teikoku Oil (D.R. Congo), up US$15.74

dated subsidiaries rose ¥340 million to ¥1,193

from the previous fiscal year, US$29.35 for Egyptian

million. Because exploration investment including

Petroleum Development, up US$4.61, and US$35.64

geological surveys, geophysical surveys, test well

per barrel for Venezuela project subsidiaries.

drilling and other costs for oil and gas exploration
involves a degree of risk, these costs are expensed(C) Other Oil and Gas Businesses

in the accounting year that the work is initiated.

Consolidated petroleum product sales volume

Selling, general and administrative expenses

climbed 28 Mkl to 621 Mkl. In addition to this, sales

climbed ¥2,365 million to ¥20,068 million. Thisvalue grew year on year, increasing net sales by

resulted from expenses for the Venezuela project¥4,993 million to ¥38,365 million. Sales of LPG

subsidiaries, which were recorded in the consolidat-

grew by ¥323 million to ¥2,280 million, owing to

ed financial statements, as well as an increase in

an increase both in sales volume and sales price.

depreciation expenses related to the Ryomo Line

Sales of iodine rose ¥114 million to ¥818 million,

and Iruma Line.

due to increased selling prices despite a decline insales volume.

As a result, operating income increased by¥7,544 million (+55.7%) to ¥21,077 million.

DATA

726 Mbbls. Furthermore, sales volume of

TEIKOKU

3,779 Mbbls, resulting in a sales value increase of

INPEX

72 INPEX Holdings Inc.

Other Non-Operating and Pretax Income

Corporate Taxes and Net Income for the Period

Net non-operating income (non-operating income

Income taxes rose by ¥2,726 million year on year tominus non-operating expenses) totaled ¥5,045 mil-

¥10,086 million, owing to an increase in revenues

lion, an increase of ¥1,903 million compared to thefrom Teikoku Oil and Teikoku Oil (D.R. Congo).

previous fiscal year. The principal components of

Adjustment for income taxes and minority

this result were a ¥3,430 million gain on sales ofinterests was up by ¥845 million to ¥264 million,

investments in securities. Meanwhile, there was areflecting an increase in allowance for losses on¥1,034 million decline in equity in earnings ofoverseas investment.

affiliates, reflecting the inclusion of the Venezuela
project subsidiaries into the scope of consolidation

As a result, net income for the period jumped¥6,209 million (+66.9%) to ¥15,485 million.

TEIKOKU

from the fiscal year under review, and a ¥1,127
million increase in allowance for losses on overseas

Capital Expenditures and Depreciation

investment (a ¥199 million reversal compared toCapital expenditures during the fiscal year under

the previous fiscal year) due to the successful bid

review declined by ¥184 million to ¥20,643 million,

for the Moruy II Block in the Gulf of Venezuela.

mainly due to construction for natural gas pipelines

Additionally, there was ¥275 million in impairment

including the Shizuoka Line, and reinforcement oflosses for two idle assets (land), owing to the appli-

production facilities. Depreciation expenses werecation of asset impairment accounting from the fiscal

down by ¥1,198 million to ¥8,962 million, primarily

year under review.

reflecting a decrease in depreciation expenses for

As a result, income before income taxes andwells of Teikoku Oil (D.R. Congo) and offshore plat-

minority interests surged ¥9,446 million (+56.6%)

forms of Offshore Iwaki Petroleum despite an

to ¥26,122 million.

increase in depreciation expenses for the Company’s

DATApipelines.

Analysis of Financial Position
Balance Sheet Analysis

Total liabilities climbed ¥21,804 million to

Total consolidated assets at the end of the fiscal¥94,229 million, owing to an increase in deferredyear grew by ¥53,254 million to ¥293,767 million.

tax liabilities along with increased current market

Current assets increased ¥12,928 million tovalue of investment securities, and long-term debt

¥58,586 million, primarily due to an increase infor capital expenditures including new pipelines.

marketable securities and accounts receivable fromTotal shareholders’ equity improved ¥31,280

increased net sales. Investments and long-term

million to ¥197,216 million, reflecting an increase

receivables climbed ¥28,180 million to ¥97,602

in unrealized holding gains on securities andmillion, mainly reflecting an increase in the current

retained earnings.

market value of investment securities. Property,

During the fiscal year under review, Teikoku Oilplant and equipment climbed ¥11,198 million tovigorously engaged in reinforcement of its business¥125,418 million, reflecting an increase in con-foundation both in Japan and overseas: The

struction in progress due to the construction of new

Company participated in the second offshore explo-

pipelines and other capital expenditures.

ration bidding round in the Bolivarian Republic of

INPEX Holdings Inc.

As described above, the net cash decrease in

the Moruy II Block in the Gulf of Venezuela, while

the fiscal year under review was the result of con-

expanding new pipeline networks in Japan. In

centrated capital expenditures. The Company

response to this active fund demand, the Company

believes that its cash flow position will improve as

worked to improve the efficiency of funds available

pipelines currently under construction commence

within the Group, including the recovery of ¥3,000

operations and expand its market for natural gas.

INPEX

Venezuela, and confirmed the successful bid of73

million from Offshore Iwaki Petroleum and ¥2,041
million from Teikoku Oil (D.R. Congo) in dividends.

Financial Policies

Nevertheless, the Company implemented debt financ-

As an oil and gas development company, Teikoku

ing of ¥14,860 million due to the concentration of

Oil is working to expand and reproduce its domestic

payments for capital expenditures. Consequently,

and overseas reserves and will establish andlong-term borrowings at the end of the fiscal year

expand its infrastructure to efficiently produce andclimbed ¥10,318 million to ¥23,847 million.

market the reserves it acquires. The Company
believes the salient characteristics of its business isdown to 67.1%, from 69.0% in the previous fiscal

the length of time it takes from the initiation to com-

year. Teikoku Oil regards this change to be within

pletion of projects, while it foresees growing compe-

the range of financial soundness.

tition in the future between energy domains. In

TEIKOKU

Based on these results, the equity ratio edgedorder to increase its competitiveness in the busi-

Cash Flow Analysis

ness environs where it operates, the Company

Cash and cash equivalents at the end of the fiscal year

believes it is important to build a solid financial

rose ¥3,311 million year on year to ¥25,545 million.

structure and maintain its financial soundness.
In addition, in order to ensure its future ability

tive ¥15,118 million for the fiscal year, while theto maintain exploration activities, the Company con-purchase of tangible fixed assets resulted in a nettinues to add to its reserves for exploration, while

cash outflow from investing activities of ¥20,287

also allocating funds to its allowance for losses on

million. Consequently, these results combined for aoverseas investments, accruals for the estimatedfree cash flow (the sum of cash flows in operating

cost of abandoned wells and other reserves in orderand investing activities) deficit of ¥5,169 million.

to be well prepared for unavoidable future expenses.

In addition, implementing long-term borrowings

Items above that refer to future are based on the

resulted in a net cash inflow in financing activities ofGroup’s own assessment as of the end of the period¥7,845 million.

under review.

DATA

Net cash from operating activities totaled a posi-

74 INPEX Holdings Inc.

Consolidated Balance Sheets
Teikoku Oil Co., Ltd. and Consolidated Subsidiaries
Fiscal years ended December 31, 2004 and 2005

Millions of yen

Thousands of
U.S. dollars(Note 3)

2004

2005

2005

¥ 22,234¥ 25,545

Time deposits

1,681

1,673

14,178Marketable securities (Note 5)

1,651

2,149

18,212

16

13

110

12,377

15,907

134,805

(10)

(6)

(51)

12,383

15,914

134,864

5,514

6,330

53,644ASSETSINPEXCurrent assets:
Cash and cash equivalents$

216,483

Notes and accounts receivable:
Unconsolidated subsidiaries and affiliates
Trade
Less:

Allowance for doubtful receivables

Inventories (Note 6)
Other current assets

2,193

6,972

59,08545,65858,586496,492

Investments in securities (Notes 5, 7 and 8)

68,381

96,025

813,771

Less: Allowance for losses on overseas investments (Note 7)(2,253)(2,946)(24,966)

66,127

93,079788,805

2,582

3,312

28,068712

1,211

10,26369,422

97,602

827,136TEIKOKU

Total current assets

Investments and long-term receivables:

Oil and gas investments
Other long-term receivables

DATA

Total investments and long-term receivables

Property, plant and equipment (Note 8):
Land

8,644

8,676

73,525

Buildings and structures

132,709138,189

1,171,093

Wells

58,02958,172492,983

Machinery and equipment

89,067

89,837

761,331

Construction in progress

11,743

24,417

206,924

300,194319,292

2,705,864

Less: Accumulated depreciation(185,974)(193,873)(1,642,992)

Property, plant and equipment, net

114,220

125,418

1,062,864

Other assets

11,212

12,158103,034

Total assets¥ 240,513¥ 293,767$ 2,489,551

See notes to consolidated financial statements.

INPEX Holdings Inc.

LIABILITIES AND SHAREHOLDERS’ EQUITY

Millions of yen

Thousands of
U.S. dollars(Note 3)

2005

2005

2004

75

Current liabilities:
Current portion of long-term debt (Note 8)

¥

575
3,831

¥

495
4,680

$

4,195
39,661

Notes and accounts payable:
Unconsolidated subsidiaries and affiliates

65

151

1,280

Trade

2,420

2,854

24,186

Other

14,211

14,323

121,381

16,69817,329146,856

Accrued income taxes (Note 9)

2,834

2,905

24,619Accrued expenses

1,781

2,075

17,585

Other current liabilities

1,513

12,822

28,998245,746

Long-term debt (Note 8)

13,52923,847

202,093

Accrued retirement benefits for employees (Note 10)

6,466

6,491

55,008

Accrued estimated cost of abandonment of wells

9,611

10,22986,686

Deferred tax liabilities (Note 9)

12,611

23,277

197,263

Long-term liabilities:

2,766

1,384

11,729Total long-term liabilities

Other long-term liabilities

44,986

65,230552,797

Minority interests in consolidated subsidiaries

2,150

2,320

19,661

165,924

TEIKOKU

1,718
27,439Total current liabilities

INPEX

Short-term bank loans (Note 8)

Shareholders’ equity (Notes 11 and 17):DATA

Common stock:
Authorized —800,000,000 shares
19,57919,579

Capital surplus

Issued—306,130,000 shares

11,225

11,23095,169Retained earnings

114,999

127,688

1,082,102

Unrealized holding gain on securities,
net of deferred income taxes

20,53339,081

331,195

78

457

3,873

166,415

198,037

1,678,280

Translation adjustments
Less: Treasury stock, at cost; 978,622 shares in 2004
and 1,340,765 shares in 2005
Total shareholders’ equity

(479)

(820)

(6,949)165,936

197,216

1,671,322¥240,513¥293,767$2,489,551

Contingent liabilities (Note 15)
Total liabilities and shareholders’ equity

76 INPEX Holdings Inc.

Consolidated Statements of Income

INPEX

Teikoku Oil Co., Ltd. and Consolidated Subsidiaries
Fiscal years ended December 31, 2004 and 2005

Millions of yen

Thousands of
U.S. dollars(Note 3)

2004

2005

2005

Net sales¥84,032¥100,716$ 853,525

Cost of sales

48,45555,473

470,110Gross profit

35,57645,243

383,415

Exploration expenses

4,339

4,097

34,720

Selling, general and administrative expenses (Note 13)

17,70320,068170,068

Operating income

13,53321,077

178,619

Interest and dividend income

764

990

8,390

Equity in earnings of affiliates

1,354

320

2,712

Interest expense

(368)

(608)

(5,153)

TEIKOKU

Other income (expenses):

Impairment losses (Note 4)

—

(275)

(2,331)Gain on sales of investments in securities

—

3,430

29,068

1,392

1,189

10,076

3,142

5,045

42,754

16,676

26,122

221,373

Current

7,360

10,08685,475

Deferred

(581)

264

2,237

Other, net
Income before income taxes and minority interests
Income taxes (Note 9):

6,778

10,35087,712

Income before minority interests

9,897

15,772

133,661

Minority interests in earnings of consolidated subsidiaries

(621)

(287)

(2,432)¥ 9,276¥ 15,485$ 131,229

Yen

U.S. dollars(Note 3)

2005

2005

DATA

Net income

2004

Amounts per share:
Net income
Cash dividends
See notes to consolidated financial statements.

¥ 30.22
7.5

¥

50.61
9.0

$

0.43
0.08

INPEX Holdings Inc.

77

Consolidated Statements of Shareholders’ Equity
Teikoku Oil Co., Ltd. and Consolidated Subsidiaries
Fiscal years ended December 31, 2004 and 2005

Millions of yen

Thousands of
U.S. dollars(Note 3)

2004

2005

2005

Beginning of year

¥ 19,579¥ 19,579$ 165,924

End of year

¥ 19,579¥ 19,579$ 165,924¥ 11,222¥ 11,225$

95,127

2

5¥ 11,225¥ 11,230$

95,169Common stock

INPEX

Capital surplus
Beginning of year
Profit on sales of treasury stock
End of year

42

Retained earnings
Beginning of year

¥114,999$ 974,568

9,276

15,485

131,229

Cash dividends paid

(1,832)(2,745)(23,263)

(50)

(50)

(424)

Bonuses to directors and statutory auditors
Adjustment for inclusion in consolidation orequity method of accounting
End of year

(130)

—

—

¥114,999¥127,688$1,082,102¥ 18,205¥ 20,533$ 174,008

2,327

18,548157,186¥ 20,533¥ 39,081$ 331,195¥¥$

TEIKOKU¥107,735

Net income for the year

Unrealized holding gain on securities
Beginning of year
Net change during the year
End of year

Beginning of year
Net change during the year
End of year

60
17

78
378

¥

78

¥

¥

(340)

¥

661
3,203

457

$

(479)

$

3,873

Treasury stock
Beginning of year
Net change during the year
End of year
See notes to consolidated financial statements.

(138)
¥

(479)

(341)
¥

(820)

(4,059)(2,890)$(6,949)DATA

Translation adjustments

78 INPEX Holdings Inc.

Consolidated Statements of Cash FlowsDATATEIKOKU

INPEX

Teikoku Oil Co., Ltd. and Consolidated Subsidiaries
Fiscal years ended December 31, 2004 and 2005

Operating activities
Income before income taxes and minority interests
Depreciation and amortization
Loss on devaluation of investments in securities
Impairment losses
Increase (decrease) in accrued retirement benefit
Increase in accrued estimated cost of abandonment of wells
Increase (decrease) in allowance for losses on overseas investments
Other provisionInterest and dividend income
Interest expense
Equity in earnings of affiliates(Gain) loss on sales of investments in securities
Gain on sales of property, plants and equipment
Increase in notes and accounts receivable
Increase in inventories
Decrease in other current assets
Increase in notes and accounts payable(Decrease) increase consumption taxes payable
Increase in other current liabilities
Bonuses to directors and statutory auditors
Recovery of oil and gas investments
Other, net
SubtotalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities

Millions of yen

Thousands of
U.S. dollars(Note 3)

2004

2005

2005

¥ 16,676
10,160
124
—
(183)
246
(199)
150
(764)
368
(1,354)29(138)(1,620)
(78)
1,004
82
157
430
(50)
454
(814)
24,682820(373)(5,903)
19,225¥ 26,122
8,962
—
275
10
444
846
(261)
(990)
608
(320)
(3,430)(146)(3,119)
(690)
51
290
(229)
177
(50)
2,866
(6,566)24,853990(679)(10,045)
15,118$ 221,373
75,949
—
2,331
85
3,763
7,169
(2,212)(8,390)5,153(2,712)(29,068)(1,237)(26,432)(5,847)432
2,458(1,941)
1,500(424)
24,288(55,644)
210,6198,390(5,754)(85,127)
128,119

Investing activities
Decrease (increase) in time deposits(Increase) decrease in marketable securities(Increase) decrease in short-term receivables
Additions to property, plant and equipment
Proceeds from sales of property, plant and equipment
Additions to intangible fixed assets
Decrease (increase) in investments in securities
Increase in other long-term receivables
Acquisition of subsidiaries stock resulting
Acquisition of subsidiaries stock resulting in changes
in scope of consolidation
Payments of oil and gas investments
Other, net
Net cash used in investing activities(2,091)2,737
0(15,964)156(136)(2,011)(474)(2,421)

25
(493)
(65)
(19,980)
222
(93)
4,414
(543)
(107)

212
(4,178)(551)(169,322)
1,881
(788)
37,407(4,602)
(907)

618
(56)
(375)
(20,018)—(3,083)(580)(20,287)—(26,127)(4,915)(171,924)

Financing activities(Decrease) increase in short-term bank loans
Proceeds from long-term debt
Repayment of long-term debt
Cash dividends paid
Other, net
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase arising from inclusion of subsidiaries in consolidation
Cash and cash equivalents at end of year

15
260
(4,050)(1,912)(136)(5,824)16(6,601)
28,78946¥ 22,234(80)
14,860(3,866)(2,732)
(336)
7,845
632
3,309
22,2341¥ 25,545(678)
125,932(32,763)(23,153)(2,847)
66,483
5,356
28,042
188,424
8$ 216,483

See notes to consolidated financial statements.

INPEX Holdings Inc.

79

Notes to Consolidated Financial Statements
Teikoku Oil Co., Ltd. and Consolidated Subsidiaries
December 31, 2005

1

The accompanying consolidated financial statements

consolidated financial statements prepared by theof Teikoku Oil Co., Ltd. (the “Company”) and consoli-

Company as required by the Securities and Exchange

dated subsidiaries are prepared on the basis of

Law of Japan.

accounting principles generally accepted in Japan,

As permitted by the regulations under the Securities

which are different in certain respects as to the appli-and Exchange Law of Japan, amounts less than one mil-cation and disclosure requirements of Internationallion yen have been omitted. As a result, the totals shown

Financial Reporting Standards, and its consolidated

in the accompanying consolidated financial statements

foreign subsidiaries, in conformity with those of their(both in yen and in U.S. dollars) do not necessarily

countries of domicile, and are compiled from theagree with the sums of the individual amounts.

INPEX

2

Basis of Preparation

Significant Accounting Policies
The balance sheet accounts of the foreign consoli-

for investments in unconsolidated subsidiaries

dated subsidiaries, except for shareholders’ equity, theand affiliates

components of which are translated at the historical

The accompanying consolidated financial statements

exchange rates, are translated into yen at the rate ofinclude the accounts of the Company and significant

exchange in effect at the balance sheet date. The

companies controlled directly or indirectly by therevenue and expense accounts are translated at theCompany. Significant companies over which theaverage exchange rates for the year. The components

Company exercises substantial influence in terms ofof shareholders’ equity are translated at their historicaltheir operating and financial policies have been included

exchange rates.
Effective the year ended December 31, 2005, thebasis. All significant intercompany balances andCompany and its consolidated subsidiaries have adopt-transactions have been eliminated in consolidation.

ed the average rates for the revenue and expense of

The excess cost over underlying net equity at fair

the foreign subsidiaries. As a result of the adoption,

value of investments in consolidated subsidiaries andincome before income taxes and minority interests

in companies accounted for by the equity method isdecreased by ¥117 million ($992 thousand) for the

being amortized by the straight-line method over a

year ended December 31, 2005 as compared withperiod no more than 20 years.

amount which are translated at the previous rates, theInvestments in unconsolidated subsidiaries andaffiliates not accounted for by the equity method are

exchange rate at the balance sheet date.
The effect of the above changes on segment

stated at cost or less. Where there has been perma-

information is explained in Note 16.

nent impairment in the value of such investments, the(c) Cash equivalents

Company has written down its investments to reflect

The Company and its consolidated subsidiaries consider

such impairment.

all highly liquid investments with a maturity of three(b) Foreign currency translation

months or less when purchased to be cash equivalents.

Monetary assets and liabilities denominated in foreign(d) Securities

currencies are translated into yen at the exchange

In general, securities are classified into three cate-

rates prevailing at the balance sheet dates.

gories: trading, held-to-maturity or other securities.

All revenues and expenses associated with foreign

Securities held by the Company and its consolidated

currencies are translated at the rates of exchange pre-subsidiaries are all classified as other securities. Other

vailing when such transactions were made. The result-securities with a determinable market value are stateding exchange gains and losses are credited or charged

at fair value with any changes in unrealized holding

to income.

DATA

in the consolidated financial statements on an equity

TEIKOKU(a) Principles of consolidation and accounting

INPEX

80 INPEX Holdings Inc.

gain or loss, net of the applicable income taxes, includ-of service of the eligible employees. Actuarial gain anded directly in shareholders’ equity. Other securities

loss are amortized in the year following the year inwithout a determinable market value are stated at cost.

which the gain or loss is recognized by the straight-line

Cost of securities sold is determined by the moving

method over a period of 10 years which is shorter than

average method.

the average remaining years of service of the employees.

(e) Inventories
Finished products are mainly stated at the lower of costor market, cost being determined by the moving aver-customarily entitled to lump-sum payments under theirage method. Other inventories are stated at cost deter-

respective unfunded retirement allowances plans. The

mined by the moving average method except forprovision for retirement benefits for these officers hasconstruction projects in progress which are determined

been made at an estimated amount.

by the specific identification method.

(j) Income taxes(f) The accounting procedure of the account of oil

Deferred tax assets and liabilities are determined based

TEIKOKU

and gas investments

DATA

In addition, directors and statutory auditors of theCompany and certain consolidated subsidiaries areon the differences between financial reporting and the

Expenditures relating to exploration and development

tax bases of the assets and liabilities, and are measured

under certain agreements are capitalized as assets andusing the enacted tax rates and laws which will be inrecovered in accordance with the terms of the respective

effect when the differences are expected to reverse.

agreements.

(k) Accrued estimated cost of abandonment of wells(g) Property, plant and equipment and depreciation

The accrued estimated cost of abandonment of wells is

Property, plant and equipment are stated at cost.

provided to cover the costs to be incurred upon the

Depreciation is mainly computed by the straight-

abandonment of wells at an estimated amount allocatedline method over the estimated useful lives of theover a scheduled period based on the Company’s orrespective assets. Significant renewals and improve-consolidated subsidiaries’ plans for the abandonment

ments are capitalized at cost. Maintenance and repairsof such wells.

are charged to income.

(l) Allowance for losses on overseas investments(h) Leases

Allowance for losses on overseas investments is provid-

Noncancelable leases are primarily accounted for as

ed for possible losses arising from investments in theoperating leases (whether such leases are classified as

development of natural resources at an amount deter-

operating or finance leases) except that lease agree-

mined by the Company with reference to the net worth

ments which stipulate the transfer of ownership of theof the investees and certain other factors.

leased assets to the lessee are accounted for as(m) Research and development costs

finance leases.

Research and development costs are charged to(i) Retirement benefits

income when incurred.

Accrued retirement benefits for employees are provided(n) Appropriation of retained earnings

principally at the amount calculated based on the

Under the Commercial Code of Japan, the appropriation

retirement benefit obligation and the fair value of theof retained earnings with respect to a given financial

pension plan assets as of balance sheet dates, as

period is made by resolution of the shareholders at aadjusted for unrecognized actuarial gain or loss. The

general meeting held subsequent to the close of such

retirement benefit obligation is attributed to each peri-

financial period. The accounts for that period do not,od by the straight-line method over the estimated years

therefore, reflect such appropriation. (See Note 17.)

INPEX Holdings Inc.

3

U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar

rate of exchange on December 31, 2005. The transla-

amounts is included solely for convenience and hastion should not be construed as a representation thatbeen made, as a matter of arithmetical computation

yen have been, could have been, or could in the future

only, at the rate of ¥118=U.S.$1.00, the approximate

be, converted into U.S. dollars at that or any other rate.

INPEX

4

81

Accounting Change
Effective January 1, 2005, the Company and its con-

The effect of the adoption of this new standard

solidated subsidiaries have adopted a new accounting

resulted decrease to income before income taxes andstandard for impairment of fixed assets as the adoption

minority interests by ¥275 million ($2,331 thousand)of the standards was permitted from the fiscal year

for the year ended December 31.

ended March 31, 2004.
TEIKOKU

5

Securities(a) Information regarding marketable securities classified as other securities as of December 31, 2004 and 2005
is as follows:
Millions of yen
Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥21,062¥53,701¥32,638

Government bonds

1,049

1,065

15

Corporate bonds

300

301

0

Other debt securities

149

149

0

December 31, 2004

Securities whose carrying value exceeds
their acquisition cost:
Bonds:

Others———Subtotal

22,56355,21832,654

1,014

683

(331)

30

30

(0)
(0)

Securities whose acquisition cost exceeds
their carrying value:
Stock
Bonds:
Government bonds
Corporate bonds

415

415

1,599

1,599

(0)

Others———Subtotal

3,061

2,729

(332)

¥25,624¥57,947¥32,322

Other debt securities

Total

DATA

Stock

82 INPEX Holdings Inc.

Millions of yen
December 31, 2005

Thousands of U.S. dollars

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥18,871¥80,208¥61,336$ 159,924$ 679,729$ 519,797

INPEX

Securities whose carrying value exceeds
their acquisition cost:
Stock
Bonds:
Government bonds

—

—

—

—

—

—

Corporate bonds

258

269

11

2,186

2,280

93

1,554

1,554

0

13,16913,1690

OthersOther debt securities

1

1

0

8

8

0

Subtotal

20,68682,03561,348

175,305

695,212519,898

997

897

(100)

8,449

7,602

(847)

Government bonds

1,382

1,372

(9)

11,712

11,627(76)

Corporate bonds

500

500

(0)

4,237

4,237

(0)

5,140

5,139

(1)

43,55943,551

(8)

—

—

—

—

—

—

Securities whose acquisition cost exceeds
their carrying value:
Stock

TEIKOKU

Bonds:

Other debt securities
OthersSubtotal
Total

8,021

7,910

(111)

67,97567,034(941)¥28,708¥89,945¥61,237$ 243,288$ 762,246$ 518,958(b) Information regarding sales of securities classified as other securities for the years ended December 31, 2004

DATA

and 2005 is as follows:

Proceeds from sales

Millions of yen

Thousands of
U.S. dollars

2004

2005

2005

¥ 84

¥5,584$47,322

Gain on sales

0

3,430

29,068Loss on sales

(30)

—

—

(c) The redemption schedule for securities with maturity dates classified as other securities is summarized as follows:
Millions of yen
Due after one
year throughfive years

Due after
five years

372¥1,000600

169

Other debt securities

6,664

Total

¥7,637

December 31, 2005

Government bonds
Corporate bonds

Due in one
year or less¥Thousands of U.S. dollars
Due in one
year or lessDue after one
year throughfive years

Due after
five years¥—$ 3,153$8,475

$ —

—

5,085

1,432

—

—

30

56,475—254¥1,169¥30$64,720$9,907$ 254

INPEX Holdings Inc.

6

83

Inventories
Inventories at December 31, 2004 and 2005 were composed of the following:

2004

2005

2005

¥2,553¥2,724$23,085

Work in progress

451

969

8,212

Real estate for sale

263

9

76

2,246

2,626

22,254¥5,514¥6,330$53,644

Raw materials and supplies

7

Thousands of
U.S. dollars

INPEX

Merchandise and finished products

Millions of yen

Investments in Securities and Allowance for Losses on Overseas Investmentsof the following:
Millions of yen

Thousands of
U.S. dollars

2004

2005

2005

¥ 3,374¥ 4,039$ 34,229(2,253)

(0)

(0)

1,120

4,039

34,229Listed stocks

54,384

81,106687,339

Marketable debt securities

1,196

1,672

14,169Unlisted stocks and other

9,425

9,207

78,025—(1,745)(14,788)

Unconsolidated subsidiaries and affiliates
Less: Allowance for losses on overseas investments

TEIKOKU

Investments in securities and allowance for losses on overseas investments at December 31, 2004 and 2005 consisted

Other securities:

865,00690,241

764,754¥66,127¥94,280$798,983

Short-Term Loans and Long-Term Debt
Short-term bank loans are principally unsecured andgenerally represent notes. The weighted averageinterest rates for the years ended December 31,

1.03%, respectively.
Long-term debt at December 31, 2004 and 2005
consisted of the following:

2004 and 2005 were approximately 1.48% andMillions of yen

Thousands of
U.S. dollars

2004

2005

2005

¥ 9,874¥13,037$110,483

Loans from banks and others, at interest rates ranging
from 0.84% to 5.02%, due through 2016:
SecuredUnsecured
Less: Current portion

7,485

15,489131,263

17,36028,527

241,754(3,831)(4,680)(39,661)¥13,529¥23,847$202,093

DATA

Less: Allowance for losses on overseas investments

84 INPEX Holdings Inc.

Assets pledged as collateral for long-term debt and other liabilities at December 31, 2004 and 2005 were as follows:

INPEX

Investments in securities
Property, plant and equipment—at net book value

Millions of yen

Thousands of
U.S. dollars

2004

2005

2005

¥10,713¥ 9,967$ 84,466

8,321

7,703

65,280¥19,034¥17,671$149,754

Aggregate annual maturities of long-term debt subsequent to December 31, 2005 are as follows:
Millions of yen

Thousands of
U.S. dollars

2006¥ 4,680$ 39,661

2007

5,182

43,915

2008

4,640

39,322

2009

3,586

30,3902010 and thereafter

10,43788,449¥28,527$241,754

TEIKOKU

Year ending December 31,

9

Income Taxes
Income taxes applicable to the Company and its

The effective tax rates reflected in the consolidated

domestic consolidated subsidiaries comprise corpora-statements of income for the years ended December 31,

tion, enterprise and inhabitants’ taxes which, in the2004 and 2005 differ from the statutory tax rate for theaggregate, resulted in a statutory tax rate of approxi-

following reasons:DATA

mately 36.1% for 2004 and 2005.
2004

2005

36.1%

36.1%

Foreign tax

26.6

23.1

Exploration cost deducted for income tax purposes

(9.4)

(5.5)

Expenses not deductible for income tax purposes

0.6

0.3

Dividend income deductible for income tax purposes

(0.6)

(2.6)

Foreign tax credit(12.2)(8.5)

Equity in earnings of affiliates

(2.9)

(0.4)

Changes in valuation allowance

2.3

0.8

Different tax rates applied to income of foreign subsidiaries

—

(3.1)

Statutory tax rate
Effect of:Other, net

0.1

(0.6)

Effective tax rate

40.6%

39.6%

INPEX Holdings Inc.

85

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

Thousands of
U.S. dollars

2004

2005

2005

¥ 3,628¥ 4,272$ 36,203

3,069

2,507

21,246

Foreign tax credit carryforward

4,620

6,065

51,398

Accrued severance benefits

2,519

2,503

21,212

Loss on devaluation of investments in securities

776

700

5,932

Accrued estimated cost of abandonment of wells

974

1,148

9,729

Property, plant and equipment

606

621

5,263

Net operating loss carryforward

498

405

3,432

Advanced depreciation of fixed assets

394

363

3,076

1,032

—

—

Deferred tax assets:
Depreciation

Foreign exchange loss
Other
Subtotal

559

330

2,797

1,347

1,418

12,01720,027

20,338172,356

Valuation allowance(12,715)(13,421)(113,737)

Total deferred tax assets

7,311

6,916

58,610Reserve for exploration

4,358

4,673

39,602

Reserve for special depreciation

TEIKOKU

Loss on revaluation of exploration, investment and development

INPEX

Allowance for losses on overseas investments

Deferred tax liabilities:
1,052

8,915

414

464

3,932

Reserve for losses on overseas investments

287

287

2,432

11,78822,145

187,669

Unrealized holding gains on securities
Other

10

100

223

1,890

Total deferred tax liabilities

18,207

28,846244,458

Net deferred tax liabilities¥ 10,896¥ 21,930$ 185,847

Retirement Benefit Plans
The Company, its domestic subsidiaries and certain

under which termination occurs.

foreign subsidiaries have defined benefit plans, i.e.,

The following table sets forth the funded andtax-qualified pension plans and lump-sum payment

accrued status of the plans, and the amounts recog-

plans, covering substantially all employees who are

nized in the consolidated balance sheet as ofentitled to lump-sum or annuity payments, theDecember 31, 2004 and 2005 for the Company’s andamounts of which are determined by reference to their

the subsidiaries’ defined benefit plans:

basic rates of pay, length of service, and the conditions

December 31,

Retirement benefit obligation

Millions of yen

Thousands of
U.S. dollars

2004

2005

2005

$(111,602)¥(13,259)¥(13,169)

Plan assets at fair value

7,216

7,337

62,178

Unfunded retirement benefit obligation(6,042)(5,832)(49,424)

Unrecognized actuarial gain or loss
Accrued retirement benefits for employees

(423)

(658)

(5,576)¥ (6,466)¥ (6,491)$ (55,008)

DATA

1,257

Reserve for advanced depreciation of fixed assets

86 INPEX Holdings Inc.

The components of retirement benefit expenses for the years ended December 31, 2004 and 2005 are outlined

INPEX

as follows:
Millions of yen

Thousands of
U.S. dollars

Year ended December 31,

2004

2005

2005

Service cost

¥ 576

¥ 629

$5,331

Interest cost

253

246

2,085

Expected return on plan assets

(35)

(105)

(890)

Amortization of actuarial gain or loss

(21)

(41)

(347)

¥ 773

¥ 729

$6,178

Total

11

2004

2005

Discount rates

2.0%

2.0%

Expected return on plan assets

0.5%

1.5%

Capital Surplus and Retained Earnings
In accordance with the Commercial Code of Japan (theshareholders or may be transferred to common stock“Code”), the Company has provided a legal reserveby resolution of the Board of Directors. The Code, how-which is included in retained earnings. This reserve

ever, does provide that if the total amount of capitalamounted to ¥3,401 million ($28,822 thousand) as ofsurplus and the legal reserve exceeds 25% of the

December 31, 2004 and 2005. The Code provides thatamount of common stock, the excess may be distributedneither capital surplus nor the legal reserve is, in prin-to the shareholders either as a return of capital or as

ciple, available for dividends, but both may be useddividends subject to the approval of the shareholders.

to reduce or eliminate a deficit by resolution of theDATA

TEIKOKU

The assumptions used in accounting for the above plans were as follows:
December 31,

12

Depreciation and Amortization
Depreciation and amortization of property, plant andto ¥10,160 million and ¥8,962 million ($75,949 thou-equipment and other assets charged to income for thesand), respectively.

years ended December 31, 2004 and 2005 amounted

13

Research and Development Expenses
Research and development expenses included in selling,

ended December 31, 2004 and 2005 were ¥96 million

general and administrative expenses for the years

and ¥85 million ($720 thousand), respectively.

INPEX Holdings Inc.

14

87

Leasesbalance sheets if finance lease accounting had beention costs, accumulated depreciation and net book value

applied to the finance lease transactions currentlyof leased property as of December 31, 2004 and 2005

accounted for as operating leases:

which would have been reflected in the consolidated
Millions of yen

Thousands of
U.S. dollars

2004

2005

2005

¥ 768

¥ 838

$7,102

¥ 768

¥ 838

$7,102

¥ 350

¥ 405

$3,432

¥ 350

¥ 405

$3,432

¥ 418

¥ 432

$3,661

¥ 418

¥ 432

$3,661INPEX

The following pro forma amounts represent the acquisi-

Acquisition costs:
Equipment and others

Accumulated depreciation:
Equipment and others

Equipment and others

Lease payments relating to finance lease transac-

TEIKOKU

Net book value:

2004 and 2005, respectively.

tions accounted for as operating leases amounted toFuture minimum lease payments (including the¥144 million and ¥155 million ($1,314 thousand),interest portion thereon) subsequent to December 31,

which were equal to the depreciation expense of the2005 for finance lease transactions accounted for asleased assets computed by the straight-line method

operating leases are summarized as follows:over the lease terms, for the years ended December 31,
Thousands of
U.S. dollars

2006

¥149

$1,2632007 and thereafter

282

2,390

¥432

$3,661

15

Contingent Liabilities
At December 31, 2005, the Company and its consolidated subsidiaries had the following contingent liabilities:

As guarantor of indebtedness of others

Millions of yen

Thousands of
U.S. dollars¥7,608$64,475

DATA

Millions of yen

Year ending December 31,

88 INPEX Holdings Inc.

INPEX

16

Segment Information(a) Business segments

real estate leasing and management, drilling wells and

The Company and its consolidated subsidiaries are pri-warehousing.

marily engaged in the oil and gas business. The oil and

The business segment information for thegas segment comprises natural gas, liquid petroleum

Company and its consolidated subsidiaries for thegas, crude oil, petroleum products, iodine, petrochemi-

years ended December 31, 2004 and 2005 is outlined

cal refining, and the transportation of natural gas andas follows:

petroleum products; and the other segment comprises
Millions of yen
2004:

Eliminations
and other

Oil and Gas

Other

Total

Consolidated¥ 81,809¥2,222¥ 84,032

23

602

626

(626)

—

Total sales

81,833

2,825

84,658(626)

84,032

Operating expenses

68,622

2,588

71,211(712)

70,498Operating income¥ 13,211¥

236¥ 13,447¥85¥ 13,533¥

I. Sales and operating income
Sales to third parties

TEIKOKU

Intergroup sales and transfers¥—¥ 84,032

II.Assets, depreciation andcapital expenditures
Total assets¥ 234,784¥6,688¥ 241,473(960)¥ 240,513

Depreciation and amortization

10,008181

10,189(29)

10,160Capital expenditures

20,81423

20,837(10)

20,827
Millions of yen

DATA

2005:

Eliminations
and other

Oil and Gas

Other

Total

Consolidated¥ 98,406¥2,310¥ 100,716

16

655

672

(672)

—

98,422

2,965

101,388(672)

100,716

I. Sales and operating income
Sales to third parties
Intergroup sales and transfers
Total sales
Operating expenses

77,667

Operating income¥ 20,754

¥

¥

2,660

80,328305¥ 21,060¥¥ 288,093¥6,935

8,803

177

—

¥ 100,716(689)

79,63917¥ 21,077¥ 295,029¥ (1,262)¥ 293,767

8,981

(18)

8,962

II.Assets, depreciation andcapital expenditures
Total assets
Depreciation and amortization
Impairment losses
Capital expenditures

275

—

275

—

275

20,483212

20,696(53)

20,643

INPEX Holdings Inc.

89

Thousands of U.S. dollars
2005:

Oil and Gas

Other

Total

$ 833,949$19,576$ 853,525

Eliminations
and other

Consolidated

I. Sales and operating income
Sales to third parties
Total sales
Operating expenses
Operating income—$ 853,525

136

5,551

5,695

(5,695)—834,085

25,127859,220(5,695)853,525

658,195

22,542680,746$ 175,881$ 2,585$ 178,475$(5,839)674,907144$ 178,619

INPEX

Intergroup sales and transfers$

II.Assets, depreciation andcapital expenditures
Total assets$2,441,466$58,771$2,500,246$(10,695)$2,489,551

Depreciation and amortization

74,602

1,500

76,110(153)

75,949Impairment losses

2,331

—

2,331

—

2,331

Capital expenditures

173,585

1,797

175,390(449)

174,941

expenditures for the “Oil and Gas” segment decreasedby ¥1,210 million ($10,254 thousand), ¥841 millionof the foreign subsidiaries effective the year ended($7,127 thousand), ¥2 million ($17 thousand) and ¥1

December 31, 2005.

million ($8 thousand), respectively, for the year ended

As a result of the adoption, sales to third parties,

TEIKOKU

As described in Note 2 (b), the Company has
adopted the average rates for the revenue and expense

December 31, 2005 as compared with amount which

operating income, depreciation and amortization, capitalare translated at the previous rates.

(b) Geographical areas
The geographical areas segment information for the Company and its consolidated subsidiaries for the years ended
December 31, 2004 and 2005 is outlined as follows:
Millions of yen

Sales to third parties

Japan

Africa¥ 74,086¥ 9,945

Interarea sales and transfers
Total
Operating expenses

¥

—

¥

Other

Total

—

¥ 84,032

Eliminations
and other¥—

Consolidated¥ 84,032

—

—

—

—

—

—

—

74,086

9,945

—

—

84,032—

84,032

65,152

4,883

—

462

70,498070,4988,934¥ 5,062¥—¥ (462)¥ 13,533¥(0)¥ 13,533¥ 216,922¥15,265¥ 9,543¥ 101¥ 241,833¥ (1,320)¥ 240,513

Japan

AfricaCentraland South
America¥ 81,253¥12,140¥ 7,322

Operating income (loss)¥

Total assets

Millions of yen

2005:

Sales to third parties
Interarea sales and transfers

¥

Other

Total

—

¥ 100,716

Eliminations
and other¥—

Consolidated¥ 100,716

0

—

—

—

0

(0)

—

Total

81,254

12,1407,322—

100,717(0)

100,716

Operating expenses

69,490

4,779

5,157

360

79,788(149)

79,639Operating income (loss)¥ 11,763¥ 7,360¥ 2,164¥ (360)¥ 20,928¥

148¥ 21,077

Total assets¥ 265,071¥13,379¥16,269¥ 173¥ 294,894¥ (1,127)¥ 293,767

DATA

2004:

Centraland South
America

90 INPEX Holdings Inc.

Thousands of U.S. dollars

2005:

TEIKOKU

INPEX

Sales to third parties

Japan

Centraland South
America

AfricaOther$ 688,585 $ 102,881 $ 62,051 $Interarea sales and transfers
Total
Operating expenses

Total— $ 853,525

Eliminations
and other$

Consolidated— $ 853,525

0

—

—

—

0

(0)

—

688,593

102,88162,051—

853,534(0)853,525

588,898

40,50043,703

3,051

676,169(1,263)674,907

Operating income (loss)$

99,686 $ 62,373 $ 18,339 $ (3,051) $ 177,356$ 1,254 $ 178,619

Total assets$2,246,364 $ 113,381 $137,873 $ 1,466 $2,499,102$ (9,551) $2,489,551

As described in Note 2 (b), the Company has

and ¥518 million ($4,390 thousand), and operating

adopted the average rates for the revenue and expense

income for the “Africa” segment and “Central andof the foreign subsidiaries effective the year ended

South America” segment decreased by ¥690 million

December 31, 2005.

($5,847 thousand) and ¥151 million ($1,280 thou-

As a result of the adoption, sales to third parties forsand), respectively, for the year ended December 31,

the “Africa” segment and “Central and South America”

2005 as compared with amounts translated at thesegment decreased by ¥691 million ($5,856 thousand)previous rates.

(c) Overseas sales

and sales (other than exports to Japan) of its foreign

Overseas sales, which include export sales of theconsolidated subsidiaries for the years ended December

Company and its domestic consolidated subsidiaries,

31, 2004 and 2005 are outlined as follows:
Millions of yen

Year ended December 31, 2004

Overseas sales

North America

Other

Total

¥9,270¥1,379¥10,650DATA

Consolidated net sales
Overseas sales as a percentage ofconsolidated net sales

84,032
11.0%

1.6%

12.7%

North America

Other

Total

North America

Other

Total

¥10,052¥10,228¥ 20,281$85,186$86,678$ 171,873

Millions of yen
Year ended December 31, 2005

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

Thousands of U.S. dollars

100,716
10.0%

10.2%

20.1%

853,525
10.0%

10.2%

20.1%

As described in Note 2 (b), the Company has

As a result of the adoption, overseas sales for the

adopted the average rates for the revenue and expense“North America” segment and “Other” segment,of the foreign subsidiaries effective the year ended

decreased by ¥691 million ($5,856 thousand) and

December 31, 2005.

¥518 million ($4,390 thousand), respectively, for theyear ended December 31, 2005 as compared withamounts translated at the previous rates.

INPEX Holdings Inc.

17

91

Subsequent Events
accompanying consolidated financial statements for

The following appropriations of retained earnings of thethe year ended December 31, 2005, were approved at

Company, which have not been reflected in thea shareholders’ meeting held on March 30, 2006:

Millions of yen

Thousands of
U.S. dollars¥1,371$11,61950

424

Cash dividends (¥4.50=$0.04 per share)
Bonuses to directors and statutory auditors(b) Conclusion of a Joint Stock Transfer Agreement

the stock transfer date will be allotted the joint-holding

The Company and INPEX CORPORATION (hereinafter

company’s common shares based on the below stock“INPEX”) have reached a final agreement on the inte-transfer ratio.
1) 0.00144 share of the joint-holding company’s

respective meetings of Board of Directors held oncommon share will be allotted in exchange for 1

November 5, 2005 to sign a “Joint Stock Transfer

share of Company’s common share.

Agreement.” The shareholders approved it at extraordi-

2) 1 share of the joint-holding company’s common

nary shareholders’ meetings on January 31, 2006. The

shares will be allotted in exchange or 1 share oftwo companies will establish a joint-holding company,

the INPEX’s common share.

“INPEX Holdings Inc.” (hereinafter “joint-holding com-

3) 1 share of the joint-holding company’s “specialpany”) on April 3, 2006, by transferring their respectiveclass share” will be allocated for 1 share of thestock to such holding company.
1. Purpose of integration
The Company and INPEX have decided to integrate the

INPEX’s special class share.
Note: INPEX employs the odd lot share method, and theCompany employs the stock unit method at 1,000
shares per unit.

(3) Retirement of the treasury stocks

the global market by having stronger corporate power

Both the Company and INPEX will retire all of their thenand capability of acquiring interests in promising pro-existing treasury stock at an appropriate day pursuant

jects through establishing a diversified asset portfolio,

to the Japanese Commercial Code prior to the date ofreinforcing a solid financial base and concentratingstock transfer.
(4) Stock transfer payments

2. Summary of the integration

Shareholders and registered pledges listed or recorded(1) Type and number of shares to be issued by thein the final shareholders’ register of the Company on

joint-holding company

the day before the stock transfer date will receive aWith the stock transfer, the joint-holding company will

stock transfer payment of ¥3 for each common share inissue 2,360,659.95 common shares and 1 special

the Company within three months of the stock transfer

class share. However, if the Company and INPEX retiredate, in place of a dividend. However, the amounts of

their treasury stocks prior to the date of stock transfer,

stock transfer payments may be changed upon consul-

the number of common shares to be issued will betation between the Company and INPEX in light of the

reduced by the number of the shares to be allotted incircumstances, including the condition of assets andexchange for the shares retired by both the Company

liabilities of the Company, changes in general economic

and INPEX. In addition, the joint-holding company willconditions and others.

employ the odd lot share method.

(5) Date of stock transfer(2) Share allocation to shareholders of the Company

Date of stock transfer/establishment of joint-holding

and INPEX

company is scheduled for April 3, 2006.

Shareholders listed or recorded in the final shareholders’Should unavoidable circumstances requiring a

register of the Company and INPEX on the day beforechange in schedule arise, this timetable will be subject

DATA

two companies in order to establish a firm position intechnological capabilities for resource development.

TEIKOKU

gration of the two companies, and resolved at the

INPEX(a) Appropriations of retained earnings

92 INPEX Holdings Inc.

to change following consultation between the two

4. Company profiles of INPEX

companies.

(1) Main business

INPEX(6) Dividend limits until the stock transfer date

Exploration, development, production, sales of1) The Company will be able to pay dividends on

crude oil and natural gas, loans and investments toprofits up to ¥4.50 per common share, or to acompanies engaged in the aforementioned activities

total of ¥1,372,504,000 to shareholders andregistered pledges listed or recorded in the final
shareholder’s register on December 31, 2005.
2) INPEX will be able to pay dividends on profits up
to ¥5,500 per common share and per specialclass share, or to a total of ¥10,559,081,000 to(2) Headquarters
4-1-18, Ebisu, Shibuya-ku, Tokyo, 150-0013, Japan(3) Representative
Naoki Kuroda, President & Representative Director(4) Capital¥29,460 million (as of March 31, 2005)

shareholders and registered pledges listed orrecorded in the final shareholders’ register on
March 31, 2006.

(5) Shares outstanding (as of March 31, 2005)
Per common share

1,919,832.75

Per special class share

1

TEIKOKU(7) A special class share to be issued by the jointholding company
The joint-holding company should issue a special class(6) Total assets (consolidated basis)¥779,228 million (as of March 31, 2005)

share with the equal right as the one issued by INPEX(7) Fiscal year end

based on its articles of incorporation, and allocate theMarch 31

share to the minister of economy, trade and industry.
The articles of incorporation of the Company provides that decisions on the following material matters(appointment and removal of directors, disposition of(8) Net sales (consolidated basis)¥478,587 million (as of March 31, 2005)(9) Net income (consolidated basis)¥76,494 million (as of March 31, 2005)

DATA

all or part of the important assets, amendment of thearticles incorporation, mergers, share exchange, share(c) Retirement of treasury stocks

transfer, capital reduction and dissolution) concerning

Because of the approval of the joint stock transfer withthe management of the joint-holding company require

INPEX at the extraordinary shareholders’ meeting helda resolution of a meeting of the special class share-on January 31, 2006, retirement of treasury stocks pur-holder in addition to a resolution of a meeting of com-suant to Article 212 of the Commercial Code of Japanmon shareholders of the joint-holding company or a

was authorized by a board resolution at the meeting

meeting of the Board of Directors.

held on March 30, 2006. The details are as follows:

3. Profile of the joint-holding company

1. Way of retirement

reduce capital surplus
and retained earnings(1) Company name
INPEX Holdings Inc. (Japanese name: Kokusai Sekiyu

2. Type of retired stocks

common stock

Kaihatsu Teiseki Holdings Kabushiki Kaisha)

3. Number of retired stocks

1,562,067(2) Business description
INPEX Holdings Inc. will be engaged in the
management of the new corporate group and its
subsidiaries.
(3) Company headquarters
4-1-18 Ebisu, Shibuya-ku, Tokyo, 105-0013, Japan(INPEX’s current headquarters)(4) Capital¥30 billion(5) Fiscal year end
March 31

4. Amount of retirement¥1,164 million

5. Date of retirement

March 31, 2006

6. Number of issued stocks
after retirement

304,567,933

INPEX Holdings Inc.

93

Report of Independent Auditors

INPEX

Report of Independent Auditors
The Board of Directors
Teikoku Oil Co., Ltd.

In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Teikoku Oil Co., Ltd. and consolidated
subsidiaries at December 31, 2005 and 2004, and the consolidated results of theiroperations and their cash flows for the years then ended in conformity with accounting
principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements withrespect to the year ended December 31, 2005 are presented solely for convenience. Our
audit also included the translation of yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made on the basis described in Note 3.

March 31, 2006

DATA

We conducted our audits in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis for our
opinion.

TEIKOKU

We have audited the accompanying consolidated balance sheets of Teikoku Oil Co., Ltd.
and consolidated subsidiaries as of December 31, 2005 and 2004, and the related
consolidated statements of income, shareholders’ equity, and cash flows for the years thenended, all expressed in yen. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.

94 INPEX Holdings Inc.

[For reference]

Consolidated Balance SheetsDATA

TEIKOKU

INPEX

Teikoku Oil Co., Ltd. and Consolidated Subsidiaries

ASSETS
Current Assets
Cash & deposits
Notes, accounts receivable
Marketable securities
Inventories
OthersLess: Provisions for doubtful accounts
Total Current Assets
Property, Plant & Equipment
Tangible Assets
Buildings & structures
Wells
Machinery & vehicles
Land
Construction in progress
OthersTotal Tangible Assets
Intangible Assets
Exploration rights
OthersTotal Intangible Assets
Investments & Long-Term Receivables
Marketable securities
Long-term loans
Exploration & development investment
OthersLess: Allowance for doubtful receivables
Less: Allowance for exploration & development investment losses
Less: Allowance for losses on overseas investments
Total Investments and Long-Term Receivables
Total Property, Plant & Equipment
Total Assets
LIABILITIESCurrent Liabilities
Notes & accounts payable
Short-term bank loans
Accrued expenses
Accrued income taxes
OthersTotal Current Liabilities
Long-Term Liabilities
Long-term debt
Deferred tax liabilities
Accrued employee retirement benefits
Accrued director retirement compensation
Accrued cost of abandonment of wells
Reserves for special repairs
OthersTotal Long-Term Liabilities
Total Liabilities
MINORITY INTERESTS
Minority interests in consolidated subsidiaries
SHAREHOLDERS’ EQUITY
Common stock
Capital surplus
Retained earnings
Unrealized holding gains on securities
Translation adjustments
Treasury stock
Total Shareholders’ Equity
Total Liabilities, Minority Interests & Shareholders’ Equity

Millions of yen

Thousands of
U.S. dollars

Consolidated
Fiscal Year Ended
December 31,
2005

Consolidated
Fiscal Period Ended
March 31,2006

Consolidated
Fiscal Period Ended
March 31,2006

¥ 13,387
15,921
9,182
6,330
13,771(6)
58,586¥ 19,268
13,20018,332
6,308
8,762
(7)
65,864$ 164,684
112,821
156,684
53,91574,889(60)
562,940

79,346409
12,293
8,676
24,417275
125,418

78,062
233
12,734
8,698
26,499268
126,497

667,197
1,991
108,838
74,342
226,487
2,291
1,081,171

0
811
811

0
1,028
1,028

0
8,786
8,786

96,025
1,217
3,312
11,346(6)—(2,946)108,949
235,180¥293,767

104,9631,673
802
11,311(23)(545)(2,913)
115,268
242,794¥308,659

897,120
14,2996,855
96,675(197)(4,658)(24,897)
985,197
2,075,162$2,638,111

¥

3,006
5,175
14,323
2,905
3,588
28,998¥$23,847
23,277
6,491
904
10,229160
319
65,23094,22930,51924,454
6,520
879
9,040
160
1,352
72,927101,083

260,846
209,00955,726
7,513
77,265
1,368
11,556623,308
863,957

2,320

2,318

19,812

19,57911,230127,688
39,081
457(820)
197,216¥293,767

19,57911,222
131,745
42,286423—
205,256¥308,659

167,342
95,915
1,126,026
361,419
3,615—
1,754,325$2,638,111

2,832
5,448
12,712
2,290
4,872
28,15624,20546,564
108,650
19,57341,641
240,650

INPEX Holdings Inc.

95

[For reference]

Consolidated Statements of Income
Teikoku Oil Co., Ltd. and Consolidated Subsidiaries
Thousands of
U.S. dollars

Consolidated
Fiscal Year Ended
December 31,
2005

Consolidated
Fiscal Period Ended
March 31,2006

Consolidated
Fiscal Period Ended
March 31,2006

¥100,716¥27,718$ 236,906

Cost of Sales

55,47312,807

109,462

Gross Profit

45,243

14,910127,436

4,268

742

6,342

Net Sales

INPEX

Millions of yen

Exploration Expenses
Exploration expenses
Exploration subsidies

(170)

(1)

(9)

20,068

4,699

40,162

21,0779,470

80,940Interest income

253

122

1,043

Dividend income

736

348

2,974

Oil & gas royalties

721

209

1,786

Equity in earnings of affiliates

320

4,067

34,761

Selling, General & Administrative Expenses
Operating Income
Other Income

Rental income

—

32

274

480

117

1,000

Foreign exchange gains

482

—

—

Miscellaneous income

605

352

3,009

TEIKOKU

Reversal of allowance for losses on overseas investment

Other Expenses
Interest expenses
Amortization of exploration & development rights
Allowance for exploration & development investment losses

608

135

1,154

—

1,067

9,120
4,658

545

928

—

—

Allowance for cost of abandonment of wells

95

8

68

Cost of rental income

93

48

410

Foreign exchange loss

—

7

60

Miscellaneous losses

131

101

863

Ordinary Income

22,82012,804

109,436

Extraordinary Income
Gain on the sale of fixed assets
Gain on the sale of investment in securities
Reversal of allowance for doubtful receivables

146

—

—

3,430

—

—

1

—

—
22,111

Extraordinary Losses
Losses on overseas operations

—

2,587

275

—

—

Income Before Income Taxes and Minority Interests

26,122

10,21687,316

Corporate & local taxes

Impairment losses

10,086

4,485

38,333

Tax adjustments

264

(753)

(6,436)

Minority interests in earnings of consolidated subsidiaries

(287)

—

—

¥ 15,485¥ 6,484$ 55,419

Net Income for the Period

DATA

—

Allowance for losses on overseas investment

96 INPEX Holdings Inc.

[For reference]

Consolidated Statements of Shareholders’ Equity

INPEX

Teikoku Oil Co., Ltd. and Consolidated Subsidiaries

Millions of yen

Thousands of
U.S. dollars

Consolidated
Fiscal Year Ended
December 31,
2005

Consolidated
Fiscal Period Ended
March 31,2006

Consolidated
Fiscal Period Ended
March 31,2006

¥ 11,225¥ 11,230

52

Capital Surplus
Beginning of period balance$

95,983

Increase during the year
Profit from the sale of treasury stock17

Decrease during the year
Retirement of treasury stock
End of year balance

—

(10)

¥ 11,230¥ 11,222(85)

114,999

127,688

1,091,350

15,485

6,484

55,419

—

146

1,248

(2,745)(1,371)(11,718)

(50)

(50)

(427)

$

95,915Retained Earnings
Beginning of period balance

TEIKOKU

Increase during the year
Net income for the period
Increase in equity of retained earnings of affiliates
Decrease during the year
Dividends paid
Director bonuses
Auditor portion
Retirement of treasury stock

DATA

End of period balance

(6)

(6)

(51)

—

(1,153)9,855)¥127,688¥131,745$1,126,026

INPEX Holdings Inc.

97

[For reference]

Consolidated Statement of Cash Flows
Teikoku Oil Co., Ltd. and Consolidated Subsidiaries

Consolidated
Fiscal Period Ended
March 31,2006

Consolidated
Fiscal Period Ended
March 31,2006

¥ 26,122
8,962
—
275
10

¥10,216
2,187
2,587
—
29

$ 87,316
18,692
22,111
—
248

—
1,029
(990)
608
(320)
(3,430)(146)(3,119)
2,866
(690)
51
290
(229)
177
(50)
(6,566)24,853990(679)(10,045)
15,118

545
(24)
(470)
135
(4,067)
—
—
2,690
200
16
185
(59)
143
(1,386)(50)
1,885
14,765630(172)(5,350)
9,872

4,658
(205)
(4,017)
1,154(34,761)——
22,991
1,709
137
1,581
(504)
1,222
(11,846)(427)
16,111
126,197
5,385(1,470)(45,726)
84,376(2,197)2,223(2,749)2,256(65)(19,980)
222(93)(1,484)
5,898
(107)
(973)
429
(3,083)(580)(20,287)(1,001)
1,116(1,499)1,499
70(3,545)
13
(299)
(296)
373
—
(550)
94
(683)
2
(4,705)(8,556)
9,538(12,812)
12,812598(30,299)
111(2,556)(2,530)3,188—(4,701)803(5,838)17(40,214)(80)
14,860(3,866)(336)(2,729)
(2)
7,845
632
3,309
22,234

—
7,945
(986)
(340)
(1,137)
—
5,480
(17)
10,62925,545—67,906(8,427)(2,906)(9,718)—46,838(145)
90,846
218,3331¥ 25,545—¥36,175—$309,188

DATA

Cash Flows from Financing Activities
Increase (decrease) in short-term bank loans
Proceeds from long-term debt
Repayment of long-term debt
Net purchases of treasury stock
Dividends paid
Dividends paid to minority shareholders
Net Cash Provided by Financing Activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Increase in cash arising from the inclusion of subsidiaries
in consolidation
Cash and cash equivalents at the end of the period

Consolidated
Fiscal Year Ended
December 31,
2005

TEIKOKU

Cash Flows from Investing Activities
Decrease in time deposits
Redemption of time deposits
Purchases of investment securities
Redemptions and sales of marketable securities
Decrease (increase) in short-term loans
Additions to property, plant and equipment
Proceeds from the sale of property, plant and equipment
Additions to intangible fixed assets
Purchases of investment securities
Redemptions and sales of investment securities
Purchases of stock in subsidiaries
Long-term loans
Recovery of long-term loans
Payments for exploration & development investments
OthersNet Cash Provided by Investing Activities

Thousands of
U.S. dollars

INPEX

Cash Flows from Operating Activities
Income before income taxes and minority interests
Depreciation expenses
Losses on overseas operations
Impairment losses
Increase (decrease) in accrued retirement benefits
Increase (decrease) in provision for exploration &development investment losses
Increase (decrease) in other reserves
Interest and dividend income
Interest expenses
Loss (gain) on equity in earnings of affiliates
Loss (gain) on the sale of marketable securities
Gain on the sale of fixed assets
Decrease (increase) in notes and accounts receivable
Recovery of exploration & development investment
Decrease (increase) in inventories
Decrease (increase) in other operating assets
Increase (decrease) accounts payable
Increase (decrease) in deferred taxes
Increase (decrease) in other operating liabilities
Bonuses to directors and statutory auditors
OthersSubtotalInterest and dividends received
Interest paid
Corporate and local taxes paid
Net Cash Provided by Operating Activities

Millions of yen

INPEX Holdings Inc.

INPEX

+

INPEX Holdings Inc.
Operating Data andCorporate Information

99

TEIKOKU
DATA

Contents
Reserves and Production Volume of Oil and Gas

100

Subsidiaries and Affiliates106100 INPEX Holdings Inc.

Reserves and Production Volume of Oil and Gas

1

Oil and Gas Reserves

DATA

TEIKOKU

INPEXDefinition of Proved Reserves and Probable Reserves
Aiming to make an objective and rational evaluation,

In addition to the assessment of proved reserves

INPEX Holdings commissioned DeGolyer andbased on SEC Standards, INPEX Holdings also com-

MacNaughton, an independent petroleum engineering

missioned DeGolyer and MacNaughton to assess its

consultant in the United States, to assess the proved

probable reserves based on indicators established byreserves of both the INPEX Group and the Teikoku Oil

the Society of Petroleum Engineers (SPE) and the WorldGroup as of March 31, 2006. Simultaneously, thePetroleum Congress (WPC). Probable reserves, asassessment was conducted for the INPEX Group’s

defined by SPE and WPC, are unproved reserves thatproved reserves as of March 31, 2003, 2004 andare more likely than not to be recoverable based on

2005. The definition of proved reserves evaluated byanalyses of geological and engineering data. In this

DeGolyer and MacNaughton is based on the U.S.

context, when probabilistic methods are employed,

Securities and Exchange Commission’s Regulation S-X,

there should be at least a 50% probability that theRule 4-10, which is widely known among U.S.

quantities actually recovered will equal or exceed theinvestors. Proved oil and gas reserves are estimatedsum of estimated proved and probable reserves. The

quantities that geological and engineering data candifference between this definition and the definition ofdemonstrate with reasonable certainty to be recover-proved reserves based on SEC standards is the degree

able in future years from known reservoirs under exist-of certainty that oil and gas can be recovered. Probableing economic and operating conditions, as of the datereserves can be upgraded to proved reserves after thesuch an estimate is made.

addition of new technical data, under different economi-

According to SEC Standards, proved reserves arecal conditions, and with advances in operational condi-

defined according to two categories: “Proved devel-tions. Therefore, probable reserves are actually potential

oped reserves” can be expected to be recovered fromreserves that do not fall under the category of proved

existing wells with existing equipment and operating

reserves, and offer no guarantee of the production of

methods, and “proved undeveloped reserves” can betotal reserves during a future production period.

expected to be recovered from new wells on undrilled

Since INPEX Holdings was established on April 3,

acreage or from existing wells where a relatively major

2006, the INPEX Group and the Teikoku Oil Group

expenditure is required for recompletion. To be definedreceived their respective assessment reports fromas “proved reserves” assumes the existence of a

DeGolyer and MacNaughton for the reserves as ofmarketable and economic means of recovery, process

March 31, 2006. Accordingly, proved reserves, proba-and shipment, or the certainty to gain such means in

ble reserves, production volume and other related data

the short term. To that end, this definition is widely

are listed by each Group.

regarded as being conservative. Nevertheless, thestrictness of the definition does not imply any guarantee of the production of total reserves during a future
production period.

INPEX Holdings Inc. 101

Proved Reserves
The following charts list proved reserves of crude oil, condensate, LPG and natural gas as of their respective dates.
Disclosure items of proved reserves are based on the U.S. Statement of Financial Accounting Standards No. 69.

INPEX Group

Crude oil(MMbbls)

Middle East

Caspian Sea Area
and Others

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

143.0 3,363.1

15.3

—

—

—

Subtotal
Crude oil(MMbbls)

INPEX

Asia and
OceaniaInterest in
Reserves Held by
Equity-Method
Affiliates

Total

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

158.2 3,363.1

8.2

4.3

166.4 3,367.4—

Proved developed andundeveloped reserves
As of March 31, 2003
Extensions anddiscoveries

32.0

177.7

—

—

—

—

32.0

177.7

—

32.0

177.7

Acquisition and sales

12.7

34.1

—

—

177.9

—

190.6

34.1

(2.2) (24.6)

188.4

9.5

(4.4)

424.2

0.2

—

1.6

—

(2.6)

424.2

(2.9)

22.0

(5.5)

446.2

Interim production(15.4)(295.6)

(1.7)

—

(3.7)

—

(20.8)(295.6)

(1.0)

(1.7)

(21.8)(297.3)As of March 31, 2004

167.8 3,703.5

13.8

—

175.8 *1—

357.4 3,703.5

2.1—

359.5 3,703.5

As of March 31, 2004

167.8 3,703.5

13.8

—

175.8 *—

357.4 3,703.5

2.1—

359.5 3,703.5

1

Extensions anddiscoveries

—

31.7

—

—

—

—

—

31.7

Acquisition and sales

—

—

361.1

—

—

—

361.1

—

Revision ofprevious estimates(0.6)(127.7)(0.3)—(40.2)—(41.1)(127.7)(0.4)—(41.4)(127.7)

Interim production(18.9)(300.6)(26.3)

—

(4.4)

—

(49.6)(300.6)(20.6)—(70.2)(300.6)

As of March 31, 2005

148.4 3,307.0

348.3

—

131.2 *1—

627.9 3,307.0

291.2 449.6

919.0 3,756.5

As of March 31, 2005

148.4 3,307.0

348.3

—

131.2 *—

627.9 3,307.0

291.2 449.6

919.0 3,756.5

1

1.8 449.6
308.3

—

1.8

481.3

669.4

—

—

—

—

—

—

—

—

—

—

—

—

—

Acquisition and sales

—

—

—

—

—

—

—

—

—

—

—

—

Revision ofprevious estimates(27.3)(364.0) 206.4

—

(5.0)

—

174.1

(364.0)

35.6

(2.5)

209.7

(366.4)

Interim production(16.3)(287.6)(26.6)

—

(9.9)

—

(52.8)(287.6)(22.0)—(74.8)(287.6)104.7 2,655.4

528.2

—

116.3 *1—

749.2 2,655.4

304.7 447.1 1,053.9 3,102.5

65.7 1,447.6

527.4

—

44.1

—

637.2 1,447.6

303.3

As of March 31, 2006
Proved developed reserves
As of March 31, 2006—

940.4 1,447.6

Teikoku Oil Group
Asia and
Oceania

Middle East

Caspian Sea Area
and Others

SubtotalInterest in
Reserves Held by
Equity-Method
Affiliates

Total

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

22

886

—

—

14

120

36

1,006

—

—

36

1,006

21

825

—

—

14

108

35

933

—

—

35

933

Proved developed andundeveloped reserves
As of March 31, 2006
Proved developed reserves
As of March 31, 2006

Notes: 1. Includes reserves attributable to a consolidated subsidiary in which there is a 49% minority interest.
2. MMbbls: Millions of barrels
3. Bcf: Billions of cubic feet
4. Crude oil includes condensate and LPG

DATAExtensions anddiscoveries

TEIKOKU

Revision ofprevious estimates102 INPEX Holdings Inc.

TEIKOKU

INPEX

Standardized Measure of Discounted Future Net Cash Flows and Changes Relating to Proved Oiland Gas Reserves
In calculating the standardized measure of discounted

computed by application of a 10% discount factor to

future net cash flows, year-end constant price and costthe estimated future net cash flows.

assumptions are applied to our estimated annual

We believe that this information does not represent

future production from proved reserves to determine

the fair market value of the oil and natural gas reserves

future cash inflows. Future development costs are esti-or the present value of estimated cash flows since nomated based upon constant price assumptions andeconomic value is attributed to potential reserves, theassume the continuation of existing economic, operat-

use of a 10% discount rate is arbitrary, and prices

ing, and regulatory conditions. Future income taxes arechange constantly from year-end levels. Disclosure

calculated by applying the year-end statutory rate toitems are based on the U.S. statement of Financial

estimated future pretax cash flows after provision for

Accounting Standards No. 69. We use the exchange

the tax cost of the oil and natural gas properties based

rates of ¥107.41 and ¥117.47=US$1.00 as of Marchupon existing laws and regulations. The discount is31, 2005 and 2006, respectively.

INPEX GroupAs of March 31, 2005
Consolidated subsidiaries

DATA

Future cash inflows

Millions of yen
Total

Asia and
Oceania

Middle East

Caspian Sea
Area and Others¥ 5,100,161¥2,618,749¥ 1,766,276¥ 715,136

Future production and development costs(1,655,890)(899,958)(575,188)(180,744)

Future income tax expenses(1,961,637)(755,382)(1,083,213)(123,042)

Future net cash flows

1,482,634

963,409

107,875

411,350

10% annual discount for estimated timing of cash flows(645,170)(413,660)(50,866)(180,644)

Standardized measure of discounted future
net cash flows

837,464549,749

57,009230,706*

Share of equity method investees’ standardized measureof discounted future net cash flows

35,733

17,267

17,754712

Notes: Includes ¥230,706 million attributable to a consolidated subsidiary in which there is a 49% minority interest.
As of March 31, 2006

Millions of yen
Total

Asia and
Oceania

Middle East

Caspian Sea
Area and Others

Future cash inflows¥ 7,194,320¥2,767,694¥ 3,603,192¥ 823,434

Future production and development costs(2,127,421)(870,423)(1,086,127)(170,871)

Future income tax expenses(3,364,682)(841,928)(2,374,034)(148,720)

Future net cash flows

1,702,217

1,055,343

143,031503,843

10% annual discount for estimated timing of cash flows(695,748)(415,410)(82,735)(197,603)

Standardized measure of discounted future
net cash flows

1,006,469

639,933

60,296306,240*

49,26325,61921,904

1,740

Consolidated subsidiaries

Share of equity method investees’ standardized measureof discounted future net cash flows

Notes: Includes ¥306,240 million attributable to a consolidated subsidiary in which there is a 49% minority interest.

INPEX Holdings Inc. 103

As of March 31, 2006

Millions of yen
Total

Asia and
Oceania

Middle East

Caspian Sea
Area and Others¥ 837,464¥ 549,749¥ 57,009¥230,706

Sales and transfers of oil and gas produced,
net of production costs(278,021)(177,630)(73,434)(26,957)

Net change in prices, and production costs

398,010

177,041

150,082

70,887

Changes in estimated development costs

79,15380,211(23,147)

22,089

Revisions of previous quantity estimates

221,444(139,481)

396,873(35,948)

Accretion of discount193,215

97,40164,89530,919Net change in income taxes(413,857)(33,000)(368,473)(12,384)

Other(30,939)

85,642(143,509)

26,9281,006,469

639,933

60,296306,240

Total

Asia and
Oceania

Middle East

Caspian Sea
Area and Others

Future cash inflows¥ 965,784¥ 848,888¥—¥116,896

Future production and development costs(221,843)(164,669)—(57,174)

Future income tax expenses(120,929)(109,778)—(11,152)

Consolidated subsidiaries

Standardized measure, beginning of period
Changes resulting from:

INPEX

Standardized measure, end of period

Teikoku Oil Group
Millions of yen

Consolidated subsidiaries

623,012574,441—

48,571

10% annual discount for estimated timing of cash flows(343,706)(326,735)—(16,972)

Standardized measure of discounted future
net cash flows

279,305

247,706—

31,599————Interest in
Reserves Held by
Equity-Method
Affiliates

Total

Share of equity method investees’ standardized measureof discounted future net cash flows

Probable Reserves as of March 31, 2006
The following charts list probable reserves of crude oil, condensate, LPG and natural gas.

INPEX GroupAs of March 31, 2006

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

Asia and
Oceania

Middle East

Caspian Sea Area
and Others

67

495

462

1,025

456

1,481

1,810

—

123

1,932

142

2,074

SubtotalInterest in
Reserves Held by
Equity-Method
Affiliates

Total

Subtotal

Teikoku Oil GroupAs of March 31, 2006

Crude oil, condensate and LPG (MMbbls)
Natural gas (Bcf)
Note: 1. MMbbls: Millions of barrels
2. Bcf: Billions of cubic feet

Asia and
Oceania

Middle East

Caspian Sea Area
and Others

5

—

7

12

—

12

184

—

66

250

—

250

DATA

Future net cash flows

TEIKOKU

As of March 31, 2006

104 INPEX Holdings Inc.

2

Oil and Gas Production
The following chart lists average daily production for crude oil, natural gas, and the total of crude oil and natural gas by

INPEX

region. The proportional interests in production by our equity-method affiliates are not broken down by geographical regions.

INPEX Group
Fiscal year ended March 31

2004

2005

2006

42.3

51.5

44.7

Middle East

4.7

72.2

72.7

Caspian Sea Area and Others

10.1

12.1

27.1

57.0

135.8

144.5

Crude oil (Thousands of barrels per day)
Asia and Oceania

Subtotal
Proportional interest in production by equity-method affiliates

TEIKOKU

Total
Annual production (Millions of barrels)

56.8

60.2

192.6

204.7

21.8

70.3

74.7

809.9

823.5

787.8

—

—

—

Natural gas (Millions of cubic feet per day)
Asia and Oceania
Middle East
Caspian Sea Area and Others
Subtotal
Proportional interest in production by equity-method affiliates
Total
Annual production (Billions of cubic feet)

DATA

2.7
59.8

—

—

—

809.9

823.5

787.8

4.6

—

—

814.5

823.5

787.8

297.3

300.6

287.6

176.1

Crude oil and natural gas (Thousands of barrels of oil equivalent per day)
177.3

188.8

Middle East

Asia and Oceania

4.7

72.2

72.7

Caspian Sea Area and Others

10.1

12.1

27.1

192.0

273.0

275.8

Subtotal
Proportional interest in production by equity-method affiliates
Total
Annual production (Millions of barrels of oil equivalent)
Notes: Crude oil includes condensate and LPG.
JODCO’s net production includes royalties.

3.5

56.8

60.2

195.5

329.8

336.0

71.4

120.4

122.7

INPEX Holdings Inc. 105

Teikoku Oil Group
Fiscal year ended December 31

2004

2005

Asia and Oceania

3.0

3.2

Middle East

—

—

11.0

10.5

14.0

13.7

1.3

1.6

15.3

15.3

5.6

5.6

90.8

97.8

Crude oil (Thousands of barrels per day)Subtotal
Proportional interest in production by equity-method affiliates
Total
Annual production (Millions of barrels)

INPEX

Caspian Sea Area and Others

Natural gas (Millions of cubic feet per day)
Asia and Oceania
Middle East
Subtotal
Proportional interest in production by equity-method affiliates
Total
Annual production (Billions of cubic feet)

—

69.2

71.2

160.0

169.0

—

—

160.0

169.0

58.4

61.7

18.1

19.5

TEIKOKU

Caspian Sea Area and Others—

Crude oil and natural gas (Thousands of barrels of oil equivalent per day)
Asia and Oceania
Middle East
Caspian Sea Area and Others
Subtotal

Total
Annual production (Millions of barrels of oil equivalent)
Note: Crude oil includes condensate and LPG.

—
22.4

40.7

41.8

1.3

1.6

42.0

43.5

15.3

15.9

DATA

Proportional interest in production by equity-method affiliates—
22.5

106 INPEX Holdings Inc.

Subsidiaries and Affiliates
As of March 31, 2006

Consolidated Subsidiaries

TEIKOKU

INPEX

INPEX CORPORATION
Issued Capital(thousand)Voting rights
held by us (%)

INPEX Natuna, Ltd.

¥5,000,000

100.00%Exploration, development, production and sales ofoil and natural gas in South Natuna Sea Block B,
Indonesia

INPEX Offshore North Mahakam, Ltd.

¥3,300,000

100.00%Exploration of oil and natural gas in East Kalimantan
Block in Offshore East Kalimantan, Indonesia

Company Name

INPEX Offshore South Sulawesi Ltd.

¥1,345,000

100.00%Being dissolved

INPEX Tengah, Ltd.

¥1,020,000

100.00%Exploration, development, production and salesof oil and natural gas in Tengah Block in Offshore
East Kalimantan, Indonesia

INPEX North Natuna, Ltd.

¥1,020,000

100.00%Being dissolved

INPEX Offshore Northeast
Mahakam,Ltd.

¥973,000

100.00%Exploration of oil and natural gas in Saliki
Block in Offshore East Kalimantan, Indonesia

INPEX West Arguni, Ltd.

¥577,000

100.00%Being dissolved

INPEX East Arguni, Ltd.

¥268,000

100.00%Being dissolved¥4,804,000

83.50%

Exploration, development, production and salesof oil and natural gas in Offshore Northwest Java
Block, Indonesia¥400,000

100.00%Exploration, development, production and salesof oil and natural gas in Offshore Southeast
Sumatra Block, Indonesia

INPEX Jawa, Ltd.

INPEX Sumatra, Ltd.

DATA

Main business

INPEX North Makassar, Ltd.

¥3,243,000

54.18%

Being dissolved

INPEX Masela, Ltd.

¥14,753,000

52.31%

Exploration and development of oil and natural
gas in Masela Block, Indonesia

INPEX Browse, Ltd.

¥22,240,000

100.00%Exploration and development of oil and natural gas
in WA-285-P Block, Australia

INPEX Alpha, Ltd.

¥3,814,000

100.00%Exploration, development, production and salesof oil and natural gas in WA-10-L Block, Australia

A$63,241

100.00%Investment in LNG plant operating company andoperation of pipeline businesses

INPEX Sahul, Ltd.

¥4,600,000

100.00%Exploration, development, production and salesof oil and natural gas in JPDA03-12 Block in the
Timor Sea JPDA

INPEX Timor Sea, Ltd.

¥2,722,000

100.00%Exploration and development of oil and natural
gas in JPDA03-01 Block in the Timor Sea JPDA

INPEX DLNGPL Pty Ltd

INPEX BTC Pipeline, Ltd.

US$53,300

100.00%Investment in pipeline construction company

INPEX Southwest Caspian Sea, Ltd.

¥53,594,000

51.00%

Exploration, development, production and salesof oil in ACG Oil Fields, Azerbaijan

INPEX North Caspian Sea, Ltd.

¥46,780,000

45.00%

Exploration and development of oil and natural gas
in Offshore North Caspian Sea Block, Kazakhstan

Japan Oil Development Co., Ltd.

¥18,800,000

100.00%Exploration, development, production and salesof oil in ADMA Block, United Arab Emirates

Azadegan Petroleum Development, Ltd.

¥7,950,000

100.00%Appraisal and development of Azadegan Oil
Field, IranINPEX ABK, Ltd.

¥2,500,000

95.00%

Exploration, development, production andsales of oil in Abu Al Bukhoosh Block, United
Arab Emirates

INPEX Libya, Ltd.

¥180,000

100.00%Exploration of oil and natural gas in the 42-2 &4 Block in the Great Socialist People’s Libyan
Arab Jamahiriya

INPEX Services, Ltd.

¥65,000

100.00%Management of owned properties and facilities

INPEX Trading, Ltd.

¥50,000

100.00%

Sales, agency, and brokerage of crude oil andmarket research and sales planning in connection
with oil and natural gas sales

INPEX Holdings Inc. 107

Teikoku Oil Co., Ltd.
Company Name

Issued Capital(thousand)Voting rights
held by us (%)

Main business

Exploration and development of oil in the southern offshore of the Socialist Republic of Vietnam

Teikoku Oil (Venezuela) Co., Ltd.

¥8,189,000

100.00%

Reactivation of oil and gas fields, exploration anddevelopment of new fields based on the Operating
Service Agreement in the East Guarico Unit and SanviGuere Unit, the Bolivarian Republic of Venezuela

Teikoku Oil SCT Exploration B.V.

10,200100.00%Exploration and development of natural gas in the
San Carlos and Tinaco blocks in the Bolivarian
Republic of Venezuela

Teikoku Oil (North America) Co.,Ltd.

US$4,303

100.00%Exploration and development of oil in the
United States of America

US$36

100.00%Exploration, development and production of oilin the eastern onshore of the Republic of Ecuador

18

100.00%Financing for reactivation, new exploration anddevelopment of oil and gas fields in the Bolivarian
Republic of Venezuela

Teikoku Oil de Venezuela, C.A.

Bs 2,000

100.00%

Reactivation of oil and gas fields, exploration anddevelopment of new fields based on the Operating
Service Agreement in the East Guarico Unit, theBolivarian Republic of Venezuela

Teikoku Oil de Sanvi-Guere, C.A.

Bs 2,000

100.00%

Reactivation of oil and gas fields, exploration anddevelopment of new fields based on the Operating
Service Agreement in the Sanvi-Guere Unit, theBolivarian Republic of Venezuela

Teikoku Gas Venezuela, C.A.

Bs 2,000

100.00%Exploration and development of natural gas in the
San Carlos and Tinaco Blocks in the Bolivarian
Republic of Venezuela

US$11,055

100.00%Exploration and development of oil in the western
onshore of the Great Socialist People’s Libyan
Arab Jamahiriya

Teikoku Oil Suez SEJ Co., Ltd.

¥785,500

100.00%Exploration and development of oil in the Gulf ofSuez, the Arab Republic of Egypt

Teikoku Oil Algeria Co., Ltd.
(El Ouar)¥708,500

100.00%Exploration and development of oil and natural
gas in the eastern onshore of the People’s
Democratic Republic of Algeria

Teikoku Oil Ecuador
Teikoku Oil Venezuela, B.V.

Teikoku Oil Libya UK Ltd

Teikoku Oil Algeria Co., Ltd.

¥337,500

100.00%Being dissolved

Teikoku Oil Suez SOB Co., Ltd.

¥146,000

100.00%Exploration and development of oil in the Gulf ofSuez, the Arab Republic of Egypt

Teikoku Oil Nile NQR Co., Ltd.

¥37,000

100.00%Exploration and development of oil in western
desert of the Arab Republic of Egypt

Teikoku Oil (D.R. Congo) Co., Ltd.

¥10,000

100.00%Exploration, development, production and salesof oil in the Democratic Republic of the Congo

Teikoku Oil Company Panama, S.A.

US$10

100.00%

Sales of crude oil developed overseas

The Egyptian Petroleum
Development Co., Ltd.

¥10,722,000

45.73%

Exploration, development, production and salesof oil in the West Bakr Block of the Arab Republicof Egypt

Teiseki Drilling Co., Ltd.

¥100,000

100.00%

Geothermal production wells, crust activity
observation wells, wells for hot springs, civilengineering

Teiseki Real Estate Co., Ltd.

¥100,000

100.00%Real estate rental, management and insurance
agency services

Teiseki Pipeline Co., Ltd.

¥100,000

100.00%Natural gas transportation, pipeline operation,
maintenance and management

Teiseki Propane Co., Ltd.

¥80,000

100.00%

Sales of LPG and petroleum products

Teiseki Topping Plant Co., Ltd.

¥70,000

100.00%Petroleum refining related production, storage
and shipment of petroleum products

DATA

100.00%

TEIKOKU¥200,000

INPEX

Teikoku Oil (Con Son) Co., Ltd.

108 INPEX Holdings Inc.

¥10,000

100.00%

Supply of natural gas to Tokyo Electric Power
Co., Inc.’s Hirono thermal power station

Teiseki Transport System Co., Ltd.

¥10,000

100.00%Equipment and materials shipping, transport andsales of petrochemical products

Daiichi Warehouse Co., Ltd.

¥100,000

94.00%

Warehousing services

Saitama Gas Co., Ltd.

¥60,000

62.00%

City gas, LPG sales

INPEX

Offshore Iwaki Petroleum Co., Ltd.

Affiliates under Equity Method
INPEX CORPORATIONTEIKOKU

Company Name

Voting rights
held by us (%)

Main business

MI Berau B.V.

656,279

44.00%

Exploration, development, production and salesof natural gas in Berau Block in Papua, Indonesia

Bontang Train G Project Finance,Ltd.

¥50,000

40.00%

Financing for construction of LNG production
facility in Bontang Area in East Kalimantan,
Indonesia

Bontang LNG Train H Investment,
Ltd.

¥50,000

40.00%

Financing for construction of LNG production
facility in Bontang Area in East Kalimantan,
Indonesia

Project Finance BLRE, Ltd.

¥20,000

30.00%

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

BP-Japan Oil Development
Company Ltd.

£50

45.00%

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

37,86825.00%Development and production of oil and natural
gas in Offshore Soroosh Field, IranAJOCO Exploration Co., Ltd.

¥6,400,000

25.00%

Exploration, development, production and salesof oil in Offshore 3/85 Block, Angola

AJOCO’ 91 Exploration Co., Ltd.

¥2,996,000

25.00%

Exploration, development, production and salesof oil in Offshore 3/91 Block, Angola

Angola Japan Oil Co., Ltd.

¥8,000,000

19.60%

Exploration, development, production and salesof oil in Offshore 3/05 Block, Angola

R$6,52550.00%

Lease of production facilities in Albacora Blockin Offshore North Campos, Brazil¥6,152,000

37.50%

Financing for oil and natural gas exploration anddevelopment projects conducted by Frade Japão
Petróleo Limitada

Issued Capital(thousand)Voting rights
held by us (%)

JJI S&N B.V.

DATA

Issued Capital(thousand)Albacora Japão Petróleo Limitada
INPEX Offshore North Campos, Ltd.

Teikoku Oil Co., Ltd.
Company Name

Main business

Dai-ichi Oil Development Co.,Ltd.

¥100,000

32.10%

Exploration, development, production and sales ofoil and natural gas, and investment and loans forbusinesses related to such projects

Japan Ohanet Oil & Gas Co., Ltd.

¥6,400,000

15.00%Development and production of natural gas in thesoutheastern onshore of the People’s Democratic
Republic of Algeria

INPEX Holdings Inc. 109

Corporate Data

Stock Information(As of April 3, 2006)

쐽 Share Data쐽 Company Name
INPEX Holdings Inc.

Authorized Shares
9,000,000 common shares
1 special class share쐽 Established
April 3, 2006
쐽 Capital¥30 billion (As of April 3, 2006)
쐽 Company Headquarters
4-1-18 Ebisu, Shibuya-ku, Tokyo, 150-0013, Japan
쐽 Number of Employees (Consolidated)
1,710 (As of April 3, 2006)
쐽 Main Business
Management of subsidiaries and group companies engaged
in surveys, exploration, development and production of oil,natural gas and other energy resources.

Number of Shareholders / Issued and Outstanding Shares
Common shares: 48,088
shareholders / 2,358,409.13 shares
Special class share*: 1 shareholder (Minister of Economy,
Trade and Industry) /1 share
Note: The 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 shareholders’ meeting orBoard of Directors.

쐽 Shareholding by Shareholder Type*1
Individuals and Other: 4.87%

Financial Institutions(Including Trust Accounts): 14.88%

Shareholders: 46,791
Shares: 114,845.15

Shareholders: 177
Shares: 350,861.88

Foreign Corporations
and Other: 9.26%

Securities Companies: 1.25%

Shareholders: 462
Shares: 218,249.49

Shareholders: 63
Shares: 29,532.62

쐽 Organization Chart
Shareholders’ Meeting
Board of Auditors
Board of Directors

Management Committee

President

Compliance Committee

Minister of Economy, Tradeand Industry *2: 29.35%

Other Domestic
Corporations: 40.39%

Shareholders: 1
Shares: 692,307.75

Shareholders: 594
Shares: 952,612.24

Notes: 1. Shareholding ratios are for all issued and outstanding shares
2. Excludes one special class share

Internal Audit Unit

쐽 Major Shareholders (Common Shares)
Administration Division• Secretary Unit
• General Administration Unit
• Human Resources Unit

Name

Number of
SharesHolding(%)

Minister of Economy,
Trade and Industry

692,307.75

29.35

Japan Petroleum Exploration Co., Ltd.

267,232.68

11.33

Corporate Strategy & Planning Division• Corporate Strategy & Planning Unit
• Corporate Communications Unit
• Overseas Project Planning & Coordination Unit
• Domestic Project Planning & Coordination Unit
Accounting, Finance & IT System Division• Accounting & Finance Unit
• IT System Unit

Mitsubishi Corporation

193,460.40

8.20

Mitsui Oil Exploration Co., Ltd.

176,760.00

7.49

Nippon Oil Corporation

89,919.06

3.81

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

81,330.44

3.45

Japan Trustee Services Bank, Ltd.
(Trust Account)

72,547.24

3.08

Technology Division

Sumitomo Corporation

46,878.00

1.99• Technology Planning Unit
• Operator Project Support Unit
• HSE Unit

Marubeni Corporation

46,446.00

1.97

JFE Steel Corporation

29,460.00

1.25

INPEX Holdings Inc.
17th floor, Ebisu Neonato, 4-1-18, Ebisu, Shibuya-ku, Tokyo, 150-0013 Japan
Te l:+81-3-5448-0200
http: //www.inpexhd.co.jp/

Printed in Japan on recycled paper.