Japan Petroleum Exploration Co., Ltd.

Corporate Report 2018
Financial Data Book
For the year ended March 31, 2018
(From April 1, 2017 to March 31, 2018)

Contents

Management’s Discussion and Analysis･･･････････････････････････････････････････････････････1
Consolidated Balance Sheet･･･････････････････････････････････････････････････････････････････5
Consolidated Statement of Income････････････････････････････････････････････････････････････7
Consolidated Statement of Comprehensive Income･･･････････････････････････････････････････8
Consolidated Statement of Changes in Equity･･･････････････････････････････････････････････9
Consolidated Statement of Cash Flows･･･････････････････････････････････････････････････････11
Notes to Consolidated Financial Statements･････････････････････････････････････････････････12
Independent Auditor’s Report････････････････････････････････････････････････････････････････41

Management’s Discussion and Analysis
Scope of Operations
The JAPEX Group comprises, as of March 31, 2018, JAPEX, 23 consolidated subsidiaries, and otherGroup companies. The core of its business activities are crude oil and natural gas-related operations. In
addition to its business activities in Japan, the JAPEX Group is conducting business overseas throughits project companies established at each business base.
Overview of Financial Position and Operating Results
In fiscal year (FY) 2018/3, ended March 31, 2018, net sales were at ¥230,629 million, an increase of¥23,499 million (+11.3%) year on year, and gross profit was at ¥39,263 million, an increase of ¥7,090
million (+22.0%), compared with the previous fiscal year. The main factors behind the year-on-yearincreases in net sales and gross profit were rises in sales price of crude oil and natural gas.
Exploration expenses was ¥1,324 million, a decrease of ¥188 million (-12.4%) year on year. This was
mainly the result of a considerable decrease of expenditures primarily overseas. Selling, general andadministrative expenses was ¥29,173 million, a decrease of ¥801 million (-2.7%) year on year. As aresult, operating profit was ¥8,764 million, an increase of ¥8,079 million (+1,179.5%) year on year.
At Japan Canada Oil Sands Limited (JACOS), following the decision not to restart operation ofbitumen production using the SAGD process in the 3.75 Section Area (hereinafter “the DEMO Area”) at
the Hangingstone leases in the province of Alberta, Canada, the property, plant and equipment relating
to the DEMO Area was depreciated by the unit-of-production method and was posted to depreciation of
inactive non-current assets. Because of this and other negative factors, despite a significant increase inoperating profit, ordinary profit was ¥3,828 million, an increase of ¥1,606 million (+72.3%) year on year.
Following the decision not to proceed with the Pacific NorthWest LNG Project (hereinafter “the PNW
LNG Project”), the development plan of the shale gas project (hereinafter “the Upstream Project”) was
revised without the assumption of the PNW LNG Project. As a result, due to the posting of impairment
loss on the asset of JAPEX Montney Ltd. (JML) relating to the Upstream Project, and the posting ofcancellation expenses of the pipeline construction plan relating to the PNW LNG Project as other in
extraordinary losses, loss before income taxes increased by ¥72,596 million to ¥69,403 million year on
year, and profit attributable to owners of parent decreased ¥34,401 million year on year to loss
attributable to owners of parent of ¥30,958 million.
Total assets at the end of FY2018/3 decreased by ¥47,200 million from the previous fiscal year-end
to ¥699,539 million.
Current assets increased by ¥7,943 million from the previous fiscal year-end, mainly due toincreases in cash and deposits, and in short-term loans receivable. Non-current assets decreased by¥55,143 million from the previous fiscal year-end. This was due to the decline in property, plant andequipment resulting from the impairment loss of business assets of JML, progress in the recovery ofrecoverable accounts included in other in investments and other assets, and other factors, despite theincrease in investment securities resulting from the rise in market values and other factors.
Total liabilities increased by ¥6,201 million from the previous fiscal year-end to ¥242,331 million.
Current liabilities increased by ¥7,716 million from the previous fiscal year-end, mainly due to anincrease in short-term loans payable included in other in current liabilities. Non-current liabilities
decreased by ¥1,514 million from the previous fiscal year-end. This was mainly due to the increase ofdeferred tax liabilities resulting from the above-mentioned rise in market values of investment securities,
despite the decrease mainly due to the impact of fluctuation in foreign exchange rates and thereclassification of loans payable with repayments due in one year or less to current liabilities in long-termloans payable.
Total net assets decreased by ¥53,402 million year on year, to ¥457,207 million.
The main factors were decreases in non-controlling interests and retained earnings, despite anincrease in valuation difference on available-for-sale securities.
Cash Flows
As of March 31, 2018, cash and cash equivalents (hereinafter “net cash”) decreased by ¥3,737 million
compared with the end of the previous fiscal year, to ¥99,892 million. Below is a summary of cash flows
for each activity.
Cash flows from operating activities
Net cash provided by operating activities amounted to ¥52,881 million. The main factors were loss
before income taxes of ¥69,403 million, impairment loss of ¥67,721 million, ¥27,381 million in recoveryof recoverable accounts, ¥23,370 million in depreciation, and proceeds from subsidy income related to
the Soma LNG terminal construction of ¥5,000 million.

1Cash flows from investing activities
Net cash used in investing activities amounted to ¥54,218 million. Net cash was mainly used in purchaseof property, plant and equipment of ¥42,534 million, payments into time deposits of ¥28,458 million andpayments of recoverable accounts of ¥15,091 million, while net cash was mainly provided by proceedsfrom withdrawal of time deposits of ¥18,228 million, interest and dividend income received of ¥8,873
million and collection of loans receivable of ¥4,456 million.
Cash flows from financing activities
Net cash used in financing activities was ¥1,196 million. Net cash was mainly used in repayments oflong-term loans payable of ¥4,760 million and interest expenses paid of ¥1,862 million, while net cash
was mainly provided by an increase in short-term loans payable of ¥5,455 million.
Exchange Rates and Crude Oil Prices
The average unit sales price of crude oil received by JAPEX during FY2018/3 was ¥38,007 per kiloliter,
an increase of ¥7,515 per kiloliter compared with the previous fiscal year.
The sales price of domestic crude oil is essentially linked to yen translations of the price of imported
crude oil.
The weighted average price of crude oil based on the Japan Crude Cocktail (JCC) price was $56.20
per barrel, an increase of $10.59 from the level per barrel of the previous fiscal year. Compared with theprevious fiscal year, the yen depreciated ¥3.14 versus the US dollar, for a weighted average exchange
rate of ¥111.67.
The Group’s average crude oil sales price increased compared with FY2017/3 as a result of theincreases in dollar-denominated crude oil prices shown above and yen depreciation.
For sales of imported crude oil, fluctuations in crude oil prices and foreign exchange rates have alimited effect on earnings because the sales price is linked to changes in the purchase price.
The weighted average unit sales price of diluted bitumen was $39.63 per barrel.
Capital Expenditures and Depreciation
Capital expenditures decreased ¥26,583 million year on year, to ¥41,802 million. Major components ofthese expenditures included investments related to oil sands development in Canada. Depreciation andamortization increased ¥7,679 million year on year, to ¥23,370 million.
Payments of recoverable accounts fell ¥6,441 million year on year, to ¥15,015 million, mainly fordevelopment of the Garraf Oil Field in Iraq, and recovery of recoverable accounts totaled ¥27,381 million,
an increase of ¥943 million from the previous fiscal year.
Exploration Activities
Exploration expenses declined ¥188 million year on year, to ¥1,324 million.
The decrease in exploration expenses is mainly attributable to a reduction in exploratory drilling in the
U.K. North Sea Offshore Block in our overseas operations.
Net Sales
In FY2018/3, net sales in the E&P business amounted to ¥176,051 million, accounting for 76.3% of thetotal. Net sales of Contract Services were ¥8,484 million, or 3.7% of the total. Net sales of the Other
businesses were ¥46,093 million, or 20.0% of the total.
The following is an analysis of net sales in the E&P business, which accounts for the largest share ofsales:
Crude oil sales volume decreased 324 thousand kiloliters, or 12.1%, compared with FY2017/3 to2,346 thousand kiloliters, mainly due to a decrease in oil sales volume for the Garraf Oil Field in Iraq.
Nevertheless, crude oil sales increased ¥7,744 million, or 9.5% year on year, to ¥89,173 million owing torising crude oil sales prices.
Natural gas sales volume decreased 91 million cubic meters, or 4.9%, year on year, to 1,773 million
cubic meters. This volume decline mainly reflected factors such as a decrease in sales volume of theNorth Montney region in Canada. However, sales of natural gas increased ¥5,101 million, or 9.2%, year
on year, to ¥60,431 million, as the unit sales price of natural gas increased ¥4.41 per cubic meter year
on year, to ¥34.08 per cubic meter.
LNG sales volume decreased 17 thousand tons, or 4.4%, year on year, to 380 thousand tons, and
LNG sales rose ¥1,656 million, or 8.2%, to ¥21,935 million.
As a result of having started production operations of development project in the JACOS
Hangingstone lease area, diluted bitumen sales volume was 160 thousand kiloliters, an increase of 68
thousand kiloliters, or 74.8% year on year, in comparison with bitumen in the DEMO Area in FY2017/3,
and diluted bitumen sales increased ¥3,842 million, or 573.8% year on year, to ¥4,512 million.
Operating Expenses
The cost of sales increased ¥16,408 million compared with the previous fiscal year, to ¥191,366 million.

2

This was mainly the result of increases in the purchase price of LNG accompanying an increase in the
CIF price for LNG as a result of the rise in crude oil prices.
Selling, general, and administrative (SG&A) expenses declined ¥801 million from the previous fiscal
year, to ¥29,173 million.
Please see the Exploration Activities section for information on exploration expenses.
As a result, operating income increased ¥8,079 million compared with FY2017/3, to ¥8,764 million.
Non-operating Income (Loss)
Total non-operating income increased ¥792 million year on year, to ¥8,806 million, mainly owing to anincreased gain on sales of securities, and despite a decrease in foreign exchange gains.
Non-operating expenses were ¥13,743 million, increasing ¥7,265 million compared with the previous
fiscal year mainly as a result of having posted depreciation of inactive non-current assets with respect to
JACOS, upon depreciating property, plant and equipment relating to the DEMO Area using theunit-of-production method, in accordance with the decision to discontinue operation of bitumen
production using the SAGD process in the DEMO Area.
As a result, ordinary income increased ¥1,606 million compared with FY2017/3, to ¥3,828 million.
Extraordinary Gain (Loss)
JAPEX recorded extraordinary income of ¥5,002 million, up ¥3,701 million from FY2017/3, as a result ofsuch factors as subsidy income.
Extraordinary losses, meanwhile, increased ¥77,903 million year on year, to ¥78,234 million. The
increase was largely a result of having recorded an impairment loss on project assets relating to the
PNW LNG Project involving JML, while also having posted cancellation expenses with respect topipeline construction plans relating to the PNW LNG Project as other in extraordinary losses, upon
having revised development plans to account for the Upstream Project no longer being subject to PNW
LNG Project assumptions, following the decision not to proceed with the PNW LNG Project.
As a result of the above, JAPEX recorded a loss before income taxes of ¥69,403 million, for a¥72,596 million decrease in profit in comparison with the previous fiscal year.
Profit Attributable to Owners of Parent
Current and deferred income taxes amounted to ¥239 million, a ¥1,402 million decrease compared withthe previous fiscal year. Meanwhile, loss attributable to non-controlling interests was ¥38,683 million(compared to loss attributable to non-controlling interests in FY2017/03 of ¥1,892 million).
As a result of the above, after deducting income taxes and non-controlling interests, JAPEX recorded
loss attributable to owners of parent of ¥30,958 million, a decrease in profit of ¥34,401 million comparedwith the previous fiscal year.
Financial Policy
The following section describes practices of the JAPEX Group with respect to its capital resources andliquidity:
The JAPEX Group’s financing needs primarily consist of funds used as working capital with respect
to its operating activities and funds for capital investment and overseas investment with respect to its
investing activities.
Although working capital is primarily procured using internal funds, the JAPEX Group curtails its
interest-bearing debt by arranging intercompany loans such as those using CMS (cash management
systems) in an effort to improve funding efficiency. In addition, JAPEX had also, as of the end of
FY2018/3, entered into overdraft agreements and loan commitment agreements in a total amount of¥134,061 million with seven of its banking partners for the purpose of efficiently procuring working
capital.
With funds used for capital investments and overseas investments, when the investment amountwarrants long-term debt, financing is occasionally used in light of the quality of the project and thebalance of liquidity in hand. The total of long-term loans payable (including loans payable within oneyear) as of the end of FY2018/3 was ¥140,769 million. The primary components were ¥8,499 million inloans as capital for development of the Kangean Block in Indonesia and ¥67,407 million and ¥61,052
million, respectively, in loans as capital for oil sands development and shale gas development in
Canada.
In addition, as of the end of FY2018/3, the JAPEX Group maintained contingent liabilities totaling¥18,076 million for guarantees of bank and other financing used for operating capital of overseas projectcompanies and for employee home loans. Provisions for these obligations, however, ensure adequate
liquidity through cash on hand and marketable securities.

3

Dividend Policy
JAPEX has the basic policy on profit distribution to maintain long-term and stable dividends forshareholders. As a company with the role of providing a stable supply of oil and natural gas essential forthe function of society, the specific dividend amount is set after giving comprehensive consideration toinvestments aimed at securing new, proved reserves worldwide and retaining earnings to funddevelopment and expansion of our supply infrastructure in light of the medium to long-term outlook forthe business environment. In addition to the above, we need to consider the level of earnings for eachfiscal year and any future funding needs from the perspective of strengthening our financial standing in
the midst of the recent deterioration in our consolidated results due to the decline in oil prices.
Our basic policy is to pay dividends on surplus twice a year, in the form of interim and year-end
dividends. The interim dividend is determined by resolution of the Board of Directors, whereas theyear-end dividend is determined by resolution of the General Meeting of Shareholders.
Based on this policy, we decided to issue the annual dividend for FY2018/3 of ¥20 per share (interim
dividend of ¥10 per share and a year-end dividend of ¥10 per share).
In accordance with the stipulations of Paragraph 5, Article 454 of the Companies Act of Japan,
JAPEX’s Articles of Incorporation permit the interim dividend to be determined by resolution of the Boardof Directors, with September 30 as the date of record.

4

CONSOLIDATED BALANCE SHEETJapan Petroleum Exploration Co., Ltd. and Consolidated Subsidiaries
As of March 31, 2018

Millions of yen

ASSETS

2018

Thousands of
U.S. dollars(Note 1)

2017

2018

Current assets:
Cash and deposits (Notes 11 and 20)¥

115,313¥

109,488

$

1,087,858

Notes and accounts receivable - trade (Note 11)

26,07328,283245,971

Securities (Notes 4, 11 and 20)

2,200

1,302

20,754Merchandise and finished goods (Note 3)

5,447

4,282

51,386Work in process (Note 3)
Raw materials and supplies (Note 3)
Deferred tax assets (Note 7)

381

84

3,594

5,524

5,414

52,113

151

143

1,424

Short-term loans receivable (Note 11)

6,449

4,348

60,839

Other

7,796

8,042

73,547Less — allowance for doubtful accounts

Total current assets

(34)

(31)

(320)

169,302161,359

1,597,188

Non-current assets:
Property, plant and equipment (Notes 5 and 17):Land

16,783

16,736

158,330

Buildings and structures

328,212170,341

3,096,339

Wells

116,387

113,166

1,097,990

Machinery, equipment and vehicles

116,313

117,045

1,097,292

Construction in progress

71,936217,984

678,641

Other

30,906

79,292

291,566

Less — accumulated depreciation(351,050)(330,776)(3,311,792)

Total property, plant and equipment

329,490383,790

3,108,396

8,226

8,487

77,603

8,226

8,487

77,603

Investment securities (Notes 4 and 11)

167,342

148,237

1,578,698

Intangible assets:
Other

Total intangible assets

Investments and other assets:Long-term loans receivable (Note 11)

4,547

11,67242,896

Deferred tax assets (Note 7)

7,669

4,668

72,349Defined benefit asset (Note 8)

1,451

954

13,688Other (Note 4)

13,54030,171

127,735

(50)

(51)

(471)

Less — allowance for doubtful accounts
Less — allowance for overseas investment loss

Total investments and other assets
Total non-current assets(1,982)(2,549)(18,698)

192,519

193,102

1,816,216

530,236

Total assets¥

See notes to consolidated financial statements.

5699,539

585,380¥

746,739

5,002,226$

6,599,424

Millions of yen

LIABILITIES AND NET ASSETS

2018

Thousands of
U.S. dollars(Note 1)
2018

2017

Current liabilities:
Notes and accounts payable - trade (Note 11)¥

Provision for directors’ bonuses

13,544¥

13,634$

127,773

20

24

188

Other (Notes 6 and 7)

32,062

24,252

302,471

Total current liabilities

45,62737,911

430,443

Long-term loans payable (Notes 6 and 11)

135,959

141,903

1,282,632

Deferred tax liabilities (Note 7)

34,87229,497

328,981

83

69

783

Defined benefit liability (Note 8)

3,496

3,572

32,981

Asset retirement obligations (Note 13)

18,664

18,292

176,075

Other (Note 6)

3,628

4,882

34,226

Total non-current liabilities

196,704

198,218

1,855,698

Total liabilities

242,331

236,1292,286,141

14,28814,288

134,792

183

183

1,726

315,631345,6932,977,650

Non-current liabilities:

Provision for directors’ retirement benefits

Commitment and contingent liabilities (Notes 10, 12 and 14)
Net assets (Note 9):
Shareholders’ equity:
Capital stock:
Authorized — 120,000,000 shares
Issued— 57,154,776 shares as of March 31, 2018 and 2017

Capital surplus
Retained earnings
Treasury shares; 2,139 shares as of March 31, 2018 and 2017

Total shareholders’ equity

(10)

(10)

(94)

330,093360,155

3,114,084

86,667

69,832817,613

Accumulated other comprehensive income:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit plans

3

(226)

28

5,149

7,301

48,575

1,152

455

10,867

Total accumulated other comprehensive income

92,97377,363877,103

Non-controlling interests

34,14073,091

322,075

Total net assets

457,207510,609

4,313,273

Total liabilities and net assets¥

See notes to consolidated financial statements.

6699,539¥746,739$

6,599,424

CONSOLIDATED STATEMENT OF INCOME
Japan Petroleum Exploration Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2018

Millions of yen
2018

Net sales¥

Thousands of
U.S. dollars(Note 1)
2018

2017

230,629¥

207,130$

2,175,745

Cost of sales (Note 3)

191,366

174,957

1,805,339

Gross profit

39,26332,172

370,405

Exploration expenses

1,380

1,847

13,018

Exploration subsidies

(55)

(334)

(518)

1,324

1,512

12,490

Selling, general and administrative expenses (Note 16)

29,17329,975275,216

Operating profit

8,764

685

82,67913,037

Other income (expenses):
Interest income

1,382

1,243

Dividend income

2,422

2,301

22,849Gain (loss) on sales of securities, net

1,349

89

12,726

Share of profit (loss) of entities accounted for using equity method(2,601)(4,255)(24,537)

Depreciation of inactive non-current assets (Note 22)(7,797)−(73,556)

Foreign exchange gains (losses)

2,710

3,444

25,566

Interest expenses(2,178)(1,245)(20,547)

2

892

18

−

403

−

(74)

(90)

(698)

Gain on sales of non-current assets
Gain on transfer of mining rights
Loss on retirement of non-current assets
Subsidy income (Note 5)

5,000

−

47,169Impairment loss (Note 17)(67,721)(62)(638,877)

−

(177)

−

Loss on business liquidation
Other, net(10,662)(35)(100,584)(78,167)

2,507(737,424)(69,403)

3,192(654,745)

Income taxes - current

4,392

2,619

41,433

Income taxes - deferred(4,153)(977)(39,179)

Profit (loss) before income taxes
Income taxes (Note 7):

Profit (loss)
Loss attributable to non-controlling interests

239

1,642

2,254

(69,642)1,550(657,000)(38,683)

Profit (loss) attributable to owners of parent (Note 19)¥

See notes to consolidated financial statements.

7(30,958)(1,892)¥

3,443(364,933)$(292,056)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Japan Petroleum Exploration Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2018

Millions of yen
2018Profit (loss)¥

Thousands of
U.S. dollars(Note 1)
2018

2017

(69,642)

¥

1,550

$

(657,000)

Other comprehensive income (Note 21):
16,791

19,302

158,405

Deferred gains or losses on hedges

242

(244)

2,283

Foreign currency translation adjustment

32(4,283)301

Remeasurements of defined benefit plans

632

267

5,962

Share of other comprehensive income of entities accounted for using equity
method

(826)

(297)

(7,792)

Valuation difference on available-for-sale securities

Changes in equity interest

Total other comprehensive income
Comprehensive income

¥

2,040

(2,103)

19,245

18,912

12,640178,415(50,729)¥

14,191$(13,308)¥

16,564$(478,575)

Comprehensive income attributable to:
Owners of parent¥(37,421)

Non-controlling interests
See notes to consolidated financial statements.

8(2,372)(125,547)(353,028)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Japan Petroleum Exploration Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2018

Millions of yen
Shareholders’ equity
CapitalsurplusCapital stock
Balance as of April 1, 2016¥

14,288¥Dividends from surplus
Profit attributable to owners ofparentChange in ownership interest ofparent due to transactions with
non-controlling interests

Retainedearnings

157¥

345,674

Total
shareholders’equityTreasuryshares¥(10)¥360,109(1,714)(1,714)

3,443

3,443

Change of scope of equity method

393

393

Changes in equity interest
Net changes of items other thanshareholders’ equity(2,103)(2,103)26

26

Total changes of items during
period

−

26

19

−

45

Balance as of April 1, 2017

14,288183345,693(10)

360,155

Dividends from surplus
Loss attributable to owners ofparentChanges in equity interest
Net changes of items other thanshareholders’ equity
Total changes of items during
periodBalance as of March 31, 2018−¥

14,288−¥183(1,143)(1,143)(30,958)(30,958)

2,040

2,040

−

(30,061)¥

315,631¥(10)(30,061)¥

330,093

Millions of yen
Accumulated other comprehensive income
Valuationdifference on
available-forsale securities
Balance as of April 1, 2016¥

50,554

Deferred
gains orlosses onhedges¥3

Foreigncurrencytranslation
adjustment¥

10,087

Remeasurementsof defined benefit
plans

Total
accumulated
othercomprehensive
incomeNoncontrollinginterests¥¥¥ 74,308

253

60,899Dividends from surplus
Profit attributable to owners ofparentChange in ownership interest ofparent due to transactions with
non-controlling interests

Total net
assets¥495,317(1,714)3,443

26

Change of scope of equity method

393

Changes in equity interest
Net changes of items other thanshareholders’ equity(2,103)
19,277(229)(2,786)201

16,463(1,216)

15,247

Total changes of items during
period19,277(229)(2,786)201

16,463(1,216)

15,292

Balance as of April 1, 201769,832

(226)

7,301

455

77,36373,091

510,609

Dividends from surplus
Loss attributable to owners ofparent(1,143)(30,958)

Changes in equity interest
Net changes of items other thanshareholders’ equity

2,040
16,834229(2,151)

697

15,610(38,950)(23,340)

Total changes of items during
period16,834229(2,151)

697

15,610(38,950)(53,402)

92,973¥ 34,140¥ 457,207

Balance as of March 31, 2018¥
86,667
See notes to consolidated financial statements.

¥

3

¥

5,149

9

¥

1,152

¥

Thousands of U.S. dollars (Note 1)
Shareholders’ equity
CapitalsurplusCapital stock
Balance as of April 1, 2017$

134,792$

Retainedearnings

1,726$ 3,261,254

Dividends from surplus
Loss attributable to owners ofparentBalance as of March 31, 2018−$

134,792

$

$

(94)

$

3,397,688(10,783)(10,783)(292,056)(292,056)

19,245

19,245

Changes in equity interest
Net changes of items other thanshareholders’ equity
Total changes of items during
periodTotal
shareholders’equityTreasuryshares−(283,594)

1,726$ 2,977,650

−
$

(94)

(283,594)$

3,114,084

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Valuationdifference on
available-forsale securities
Balance as of April 1, 2017$658,792

Deferred
gains orlosses onhedges$(2,132)Foreigncurrencytranslation
adjustment

Remeasurementsof defined benefit
plans

$

$

68,877

4,292

Total
accumulated
othercomprehensive
income$729,839

Noncontrollinginterests$ 689,537

Total net
assets$4,817,066(10,783)

Dividends from surplus
Loss attributable to owners ofparent(292,056)

Changes in equity interest
Net changes of items other thanshareholders’ equity

19,245
158,811

Total changes of items during
period158,811

Balance as of March 31, 2018$817,613
See notes to consolidated financial statements.

2,160(20,292)

2,160
$

28

6,575

(20,292)$

48,575

10

147,264

6,575$

10,867$(367,452)

147,264(367,452)

877,103$ 322,075(220,188)(503,792)$

4,313,273

CONSOLIDATED STATEMENT OF CASH FLOWSJapan Petroleum Exploration Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2018

Millions of yen
2018

2017

Thousands of
U.S. dollars(Note 1)
2018

Cash provided by (used in) operating activities:
Profit (loss) before income taxes
Depreciation and amortization
Impairment loss
Loss on retirement of property, plant and equipment
Loss (gain) on valuation of short-term and long-term investment securities
Increase (decrease) in allowance for doubtful accounts
Decrease (increase) in defined benefit asset
Increase (decrease) in defined benefit liability
Increase (decrease) in provision for directors’ retirement benefits
Increase (decrease) in allowance for overseas investment loss
Interest and dividend income
Interest expenses
Foreign exchange losses (gains)
Loss (gain) on sales of short-term and long-term investment securities
Share of loss (profit) of entities accounted for using equity method
Recovery of recoverable accounts
Decrease (increase) in notes and accounts receivable - trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable - trade
Increase (decrease) in accrued consumption taxes
Other, net¥

Subtotal
Proceeds from subsidy income
Income taxes (paid) refund
Net cash provided by (used in) operating activities(69,403)23,37067,721
46
284
1
(497)
(76)
14
(566)
(3,805)2,178(3,003)(1,349)2,601
27,381
2,209(1,571)
844
481
2,742

¥

3,192
15,690
62
86
10
(6)
(65)
(1)
(18)
(298)
(3,545)
1,245(1,426)(89)
4,255
26,437(3,648)(1,219)3,055(1,232)3,651$(654,745)
220,471
638,877433
2,679
9(4,688)(716)
132(5,339)(35,896)
20,547(28,330)(12,726)
24,537258,311
20,839(14,820)
7,962
4,537
25,86749,6025,000(1,721)
52,881

46,135−(2,463)
43,672467,943
47,169(16,235)
498,877(28,458)
18,2280(42,534)
94
(290)
(712)
(70)
1,350
(198)
(15,091)
(20)
4,456
8,873
9
208
(63)
(54,218)(7,249)946
398(70,250)
951
(323)
(294)
(135)
2,645
(339)
(21,380)
(24)
1,082
5,511
−
3,526
250
(84,686)(268,471)
171,9620(401,264)886(2,735)(6,716)(660)
12,735(1,867)(142,367)(188)
42,037
83,707
84
1,962
(594)
(511,490)

5,455
3,221
(4,760)(1,144)(1,529)(1,862)(577)−(1,196)(1,204)(3,737)
103,630
99,892−
20,385−(1,716)
(315)
(896)
(594)
1,498
18,360(286)(22,940)
126,570
103,630

51,46230,386(44,905)(10,792)(14,424)(17,566)(5,443)−(11,283)(11,358)(35,254)
977,641
942,377

Cash provided by (used in) investing activities:
Payments into time deposits
Proceeds from withdrawal of time deposits
Proceeds from sales and redemption of securities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Payments for asset retirement obligations
Purchase of investment securities
Proceeds from sales and redemption of investment securities
Payments for investments in capital
Payments of recoverable accounts
Payments of loans receivableCollection of loans receivable
Interest and dividend income received
Proceeds from dividends of residual property
Proceeds from capital reduction of investments
Other, net
Net cash provided by (used in) investing activities

Cash provided by (used in) financing activities:
Increase in short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Cash dividends paid
Dividends paid to non-controlling interests
Interest expenses paid
Repayments of lease obligations
Proceeds from share issuance to non-controlling shareholders
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 20)¥

See notes to consolidated financial statements.

11

¥

$

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Japan Petroleum Exploration Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2018

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Japan Petroleum Exploration Co., Ltd. (the “Company”) and its
Consolidated Subsidiaries (together, the “Group”) have been prepared in accordance with the provisions set forth in
the Financial Instruments and Exchange Act of Japan and its related accounting regulations and in conformity withaccounting principles generally accepted in Japan, which are different in certain respects as to application anddisclosure requirements of International Financial Reporting Standards (“IFRS”).
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been madeto the consolidated financial statements issued domestically in order to present them in a form which is more familiar toreaders outside Japan.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which theCompany is incorporated and operates.
As permitted by the regulations under the Financial Instruments and Exchange Act of Japan, amounts of less than
one million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial
statements in yen do not necessarily agree with the sums of the individual amounts.
The U.S. dollar amounts shown in the accompanying consolidated financial statements and notes thereto weretranslated from the presented Japanese yen amounts into U.S. dollar amounts at the rate of ¥106 = U.S. $1, theapproximate rate of exchange at March 31, 2018, and were then rounded down to the nearest thousand. As a result,
the totals shown in the accompanying consolidated financial statements in U.S. dollar do not necessarily agree with thesums of the individual amounts. This translation of Japanese yen amounts into U.S. dollar amounts is included solely
for convenience of readers outside Japan. Such translation should not be construed as a representation that Japanese
yen could be converted into U.S. dollars at that or any other rate.

2. Significant Accounting Policies(1) Principles of consolidation and accounting for investments in unconsolidated subsidiaries andassociates
The consolidated financial statements as of and for the year ended March 31, 2018 include the accounts of theCompany and its 23 (23 in 2017) significant subsidiaries.
Under the control or influence concept, those companies in which the Company, directly or indirectly, is able toexercise control over operations are consolidated, and those companies over which the Group has the ability to
exercise significant influence are accounted for using the equity method.
For the year ended March 31, 2018, 12 (14 in 2017) associates are accounted for using the equity method.
Investments in the remaining unconsolidated subsidiaries and associates are stated at cost. If the equity method of
accounting was applied to the investments in these companies, the effect on the accompanying consolidated financial
statements would not be material.
The goodwill (including the difference between the cost and the underlying net equity at fair value of investments inconsolidated subsidiaries) is amortized by the straight-line method, in general, over a period of 5 years.
The difference between the cost and the underlying net equity at fair value of investments in entities accounted forusing the equity method is amortized by the straight-line method over a period not exceeding 20 years, except forminor accounts that are charged to income in the period of acquisition.
The accounts of certain consolidated subsidiaries with a fiscal year-end of December 31 are consolidated on thebasis of their fiscal year-end. The necessary adjustments have been made to the consolidated financial statements forany significant transactions that took place between the day following their balance sheet date and the consolidatedbalance sheet date.
Entities accounted for using the equity method whose fiscal year-ends are different than that of the Company areaccounted for on the basis of the entities’ respective fiscal year-end.
(2) Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated into yen at the exchange rates
prevailing at the consolidated balance sheet dates.
All revenues and expenses associated with foreign currencies are translated into yen at the exchange rates
prevailing when such transactions were made. The resulting exchange gains or losses are credited or charged toincome.
The revenue and expense accounts of the foreign consolidated subsidiaries are translated into yen at theexchange rates in effect at their balance sheet dates, and, except for the components of net assets excluding noncontrolling interests, the balance sheet accounts are translated into yen at the exchange rates in effect at their balance
sheet dates. The components of net assets excluding non-controlling interests are translated into yen at their historicalexchange rates.
Differences arising from the translation are presented as foreign currency translation adjustment and noncontrolling interests in the accompanying consolidated financial statements.

12(3) Cash and cash equivalents
In preparing the consolidated statements of cash flows, the Company considers cash on hand, readily available
deposits and highly liquid short-term investments with maturities of three months or less when purchased that are
exposed to an insignificant risk of changes in value to be cash and cash equivalents.
(4) Securities and investment securities
In general, securities are classified into three categories: trading, held-to-maturity or available-for-sale securities.
Available-for-sale securities with a determinable market value are stated at fair value based on market value at thebalance sheet date, and unrealized gains and losses, net of applicable income taxes, are reported as a separate
component of net assets. Cost of securities sold is computed based on the moving average method. Available-for-salesecurities without a determinable market value are stated at the moving average cost.
(5) Inventories
Merchandise and finished goods are mainly stated at the lower of cost determined by the first-in, first-out method or market.
Raw materials and supplies are mainly stated at the lower of cost determined by the moving average method, or net realizablevalue.
(6) Property, plant and equipment (excluding leased assets)
Property, plant and equipment (excluding leased assets) are depreciated mainly by the declining-balance method,
except for buildings (excluding attached facilities) acquired on or after April 1, 1998 and facilities attached to buildings
and structures of certain domestic consolidated subsidiaries acquired on or after April 1, 2016 as well as the Sendai
pipelines, the Shiroishi-Koriyama gas pipelines, Soma-Iwanuma gas pipelines and assets of the Hokkaido District Officeof the Company which are depreciated by the straight-line method. Property, plant and equipment held by threedomestic consolidated subsidiaries are depreciated by the straight-line method, and those of three foreign consolidated
subsidiaries (three in 2017) are depreciated by the unit of production method.
The useful lives of property, plant and equipment are summarized as follows:
Buildings and structures
2 to 60 years
Wells
3 years
Machinery, equipment and vehicles
2 to 22 years(7) Intangible assets (excluding leased assets)
Intangible assets are amortized by the straight-line method.
Capitalized computer software costs are amortized by the straight-line method over a period of five years, andthose of one foreign consolidated subsidiary (one in 2017) are mainly amortized by the unit of production method.
(8) Deferred assets
Share issuance costs and development expenses are charged to income when incurred.
(9) Leased assets
For finance leases which do not transfer ownership of the leased assets to the lessee, leased assets are depreciatedby the straight-line method over the lease terms with no residual value.
(10) Impairment on non-current assets
The Group reviews its non-current assets for impairment whenever events or changes in circumstance indicate thecarrying amount of an asset or asset group may not be recoverable.
The impairment loss is measured as the amount by which the carrying amount of the asset or asset group exceeds
its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual
disposition of the asset or the net selling value at disposition.
(11) Provision for directors’ retirement benefits
Consolidated subsidiaries recognize provision for directors’ retirement benefits at the amount required according to theinternal regulations at the end of the fiscal year.
(12) Allowance for doubtful accounts
The allowance for doubtful accounts is stated at the amount determined based on the historical experience of bad debt
with respect to ordinary receivables, plus an estimate of uncollectible amounts determined by reference to specificdoubtful receivables from customers which are experiencing financial difficulties.
(13) Provision for directors’ bonuses
The provision for directors’ bonuses is stated at the estimated amount of payment at the end of the fiscal year.

13(14) Allowance for overseas investment loss
The allowance for overseas investment loss is stated at the amount determined based on the investees’ financial positionand certain other factors for possible losses arising from investments in the exploration and development of overseas
natural resources.
(15) Asset retirement obligations
Asset retirement obligations recognized by the Group are determined based on the estimated costs ofdecommissioning oil and natural gas wells and production facilities in accordance with laws, land lease contracts, etc.
for wells and production facilities in Japan and overseas, and the appropriate discount rates.
(16) Retirement benefits(a) Method of attributing expected benefit to periods
The retirement benefit obligations for employees are attributed to each period by the benefit formula method over theestimated year of service of the eligible employees.
(b) Accounting treatment of actuarial gains and losses and prior service costs
Prior service costs are amortized as incurred by the straight-line method over a certain period (10 years), which iswithin the average remaining years of service of the employees.
Actuarial gains and losses are amortized in the year following the year in which the gains or losses are recognizedby the straight-line method over a certain period (10 years), which is within the average remaining years of service ofthe employees.
(c) Application of simplified method for smaller enterprises
Certain consolidated subsidiaries apply the simplified method where the amount required for voluntary early retirement
at the fiscal year end is treated as retirement benefit obligations for calculating defined benefit liability and retirement
benefit expenses.
(17) Hedge accounting
Deferral hedge accounting is adopted for hedge transactions. Foreign exchange forward contracts are accounted for by theallocation method if the foreign exchange forward contracts meet certain criteria to adopt the method.
The following summarizes hedging derivative instruments used by the Group and items hedged:
Hedging instruments: Foreign exchange forward contracts and foreign currency deposits
Hedged items:
Accounts payable – trade and accounts payable – otherIn addition, the nominal amount of the derivative transaction is limited to within the scope of actual demand, and
the Group does not engage in speculative derivative transactions.
(18) Recognition of revenue and costs of construction contracts
The Group applies the percentage-of-completion method (the cost-comparison method is used to estimate theprogress of the construction activity) for construction contracts, if the outcome of the construction activity is deemedcertain at the end of the fiscal year. For contracts where the outcome of activity is uncertain, the completed-contract
method is applied.
(19) Research and development expenses
Research and development expenses are charged to income when incurred.
(20) Income taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences
between the carrying amounts of assets and liabilities for accounting purposes and the amounts for income tax
purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable
income in the years in which the temporary differences are expected to be settled or realized. The effect of deferred tax
assets and liabilities due to change in tax rate is recognized in the statement of income for the period including theenacted date.

14

(21) Accounting standards issued but not yet effective- “Implementation Guidance on Tax Effect Accounting” (Accounting Standards Board of Japan (“ASBJ”) Guidance No. 28,
revised on February 16, 2018)- “Implementation Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26, revised on February 16, 2018)(a) Overview
In the course of transferring practical guidance related to accounting for income tax effects prescribed by the Japanese Instituteof Certified Public Accountants to ASBJ, the ASBJ basically followed the contents and made required modifications to the“Implementation Guidance on Tax Effect Accounting,” etc.
(Major modified accounting treatments)- Treatment of taxable temporary differences relating to subsidiary shares in non-consolidated financial statements- Treatment of recoverability of deferred tax assets for entities falls under Category 1(b) Date of application
The “Implementation Guidance on Tax Effect Accounting,” etc. are applied effective from the beginning of the fiscal year ending
March 31, 2019.
(c) Effect of application
The effect of applying the “Implementation Guidance on Tax Effect Accounting,” etc. on the consolidated financial statements iscurrently under assessment.
- “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, issued on March 30, 2018)- “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, issued on March 30,
2018)(a) Overview
International Accounting Standards Board (“IASB”) and Financial Accounting Standards Board of the United States of America(“FASB”) jointly developed a comprehensive accounting standard for revenue recognition and issued “Revenue from Contracts
with Customers” (IFRS No. 15 issued by IASB and Topic 606 issued by FASB) in May 2014. Considering the situation thatIFRS No. 15 has become applicable from the fiscal year beginning on and after January 1, 2018 and Topic 606 from the fiscal
year beginning after December 15, 2017, ASBJ developed a comprehensive accounting standard for revenue recognition andissued it together with implementation guidance.
ASBJ’s basic policy in developing the accounting standard for revenue recognition was to establish accounting
standards as a starting point to adopt basic principles of IFRS No. 15 from the viewpoint of comparability of financial
statements which is one of benefits of maintaining consistency with IFRS No. 15, and to add alternative treatments tothe extent not to impair comparability in case where previous practice and others in Japan should be considered.
(b) Date of application
The “Accounting Standard for Revenue Recognition,” etc. are applied effective from the beginning of the fiscal year ending
March 31, 2022.
(c) Effect of application
The effect of applying the “Accounting Standard for Revenue Recognition,” etc. on the consolidated financial statements iscurrently under assessment.

3. Inventories
The amount of book value reduced due to a decline in profitability which is included in cost of sales for the years ended
March 31, 2018 and 2017 was ¥164 million ($1,547 thousand) and ¥130 million, respectively.

15

4. Securities and Investment Securities
Securities and investment securities held by the Group are all classified as available-for-sale securities.
(1) Information of available-for-sale securities as of March 31, 2018 and 2017 is as follows:
Millions of yen
March 31, 2018
Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Debt securities:
Corporate bonds
Other debt securities
Other
SubtotalThousands of U.S. dollars

Carrying
value

Acquisition
cost

Unrealized
gain (loss)

Carrying
value

Acquisition
cost

Unrealized
gain (loss)¥ 143,933¥

23,997¥ 119,936$ 1,357,858$ 226,386$ 1,131,471

–
–

–
–

–
–
–

–
–
–

–
–
–

–

–

–
–
–

143,933

23,997

119,936

1,357,858

226,386

1,131,471

18

18

–

169

169

–

–
–
1,700

–
–
1,700

–
–
–

–
–
16,037––
16,037–––

Securities whose carrying value
does not exceed their acquisition
cost:
Equity securities
Debt securities:
Corporate bonds
Other debt securities
Other

1,718

Subtotal

1,718–

16,207

16,207–25,716¥ 119,936$ 1,374,075$ 242,603$ 1,131,471

Total¥ 145,652¥

March 31, 2017

Carrying
value

Acquisition
cost

Unrealized
gain (loss)¥ 120,611¥¥

Millions of yen

Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Debt securities:
Corporate bonds
Other debt securities
Other
Subtotal

23,997

96,614

–
–
2

–
–
2

–
–
0

120,614

23,99996,614

21

21

–

–
–
1,300

–
–
1,300

–
–
–

Securities whose carrying value
does not exceed their acquisition
cost:
Equity securities
Debt securities:
Corporate bonds
Other debt securities
Other
Subtotal
Total

1,321

1,321

¥ 121,935¥

25,320–¥96,614

Unlisted equity securities, carrying values of which as of March 31, 2018 and 2017 were ¥2,334 million ($22,018
thousand) and ¥2,547 million, respectively, are not included in the above tables as no market prices were available andit was extremely difficult to determine the fair value.

16(2) Information on sales of securities classified as available-for-sale for the years ended March 31, 2018 and 2017 is
as follows:
Millions of yen
SalesamountMarch 31, 2018
Available-for-sale securities:
Equity securities
Debt securities:
Corporate bonds
Other debt securities
Other
Total

¥

Aggregate
gain

1,350

¥

1,350

–
–
–
¥

1,350

¥

–
–
–
¥

1,350

Thousands of U.S. dollars

Aggregate
loss
0

Sales
amount$12,735–––¥0Aggregate
gain$

12,735–––$

12,735Aggregate
loss
$

0

–
–
–
$

–
–
–

12,735$0Millions of yen
SalesamountMarch 31, 2017
Available-for-sale securities:
Equity securities
Debt securities:
Corporate bonds
Other debt securities
Other
Total

¥

588

Aggregate
gain
¥

–
–
1,485
¥

2,073

104

Aggregate
loss
¥

–
–
–
¥

104

–
–
–
15

¥

15

(3) During the year ended March 31, 2017, the Group recorded losses on valuation of securities in the amount of ¥10
million (loss on valuation of available-for-sale securities with fair value in the amount of ¥8 million and loss on
valuation of available-for-sale securities whose fair value is extremely difficult to determine in the amount of ¥1
million). However, for the ¥1 million of available-for-sale securities (unlisted equity securities) whose fair value isextremely difficult to determine, allowance for overseas investment loss was recorded, and there was no impact on
profit and loss during the year ended March 31, 2017. During the year ended March 31, 2018, the Group recorded
losses on valuation of securities in the amount of ¥284 million ($2,679 thousand) (loss on valuation of available-forsale securities whose fair value is extremely difficult to determine in the amount of ¥283 million ($2,669 thousand)and loss on valuation of available-for-sale securities with fair value in the amount of ¥1 million ($9 thousand)).
However, for the ¥283 million ($2,669 thousand) of available-for-sale securities (unlisted equity securities) whose
fair value is extremely difficult to determine, allowance for overseas investment loss was recorded, and there was
no impact on profit and loss during the year ended March 31, 2018. In addition, if the market value of the security
declines by 50% or more from its acquisition cost as of the end of the fiscal year, the Group recognizes thedifference between the market value and the acquisition cost as an impairment loss. If the decline ranges between
about 30% and 50%, the Group recognizes an impairment loss for the necessary amount considering its
recoverability.
(4) Investments in unconsolidated subsidiaries and associates at March 31, 2018 and 2017 were ¥21,577 million($203,556 thousand) and ¥28,081 million, respectively.
(5) As of March 31, 2018, investment securities of ¥453 million ($4,273 thousand) were pledged as collateral for loans
payable of subsidiaries and associates.

5. Reduction Entry for Property, Plant and Equipment
The amount deducted from the acquisition costs of property, plant and equipment due to government subsidies
received, etc. as of March 31, 2018 and 2017 is as follows:

Millions of yen

Thousands of
U.S. dollars

2017

2018

2018
Buildings and structures¥

Machinery, equipment and vehicles
Construction in progress

17

31

¥

31

$

292

128

126

1,207

5,000

–

47,169

6. Long-term Loans Payable and Lease Obligations
Long-term loans payable at March 31, 2018 and 2017 consist of the following:

Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥ 140,769¥ 146,391$ 1,328,009

140,769

146,391

1,328,009(4,809)(4,487)(45,367)¥ 135,959¥ 141,903$ 1,282,632

Loans from banks and others
UnsecuredLess — current portion

As of March 31, 2018, the weighted-average interest rate for the long-term loans payable balance was 2.21%.
The aggregate annual maturities of long-term loans payable subsequent to March 31, 2018 are as follows:Year ending March 31,

Thousands of
U.S. dollars

Millions of yen

2019

¥

4,809

$

45,367

2020

6,209

58,575

2021

7,040

66,4152022

13,156

124,1132023

13,156

124,1132024 and thereafter

96,898914,132¥ 141,269$ 1,332,726

Total

The Company and certain consolidated subsidiaries have entered into overdraft agreements and loan commitment
agreements amounting to ¥134,061 million ($1,264,726 thousand) and ¥139,212 million with seven and eight banks at
March 31, 2018 and 2017, respectively, to facilitate efficient procurement of working capital. The borrowings
outstanding under the overdraft agreements and loan commitment agreements as of March 31, 2018 and 2017 were¥69,497 million ($655,632 thousand) and ¥65,933 million, respectively, and, therefore, the unused balance was¥64,563 million ($609,084 thousand) and ¥73,279 million as of March 31, 2018 and 2017, respectively.
Lease obligations included in other in non-current liabilities at March 31, 2018 and 2017 consist of the following:

Millions of yen

Thousands of
U.S. dollars

2017

2018

2018
Lease obligations¥

Less — current portion

2,877

¥

3,306

$ 27,141(564)(3,764)

2,741$ 23,367

(399)
¥

2,477

¥

The aggregate annual maturities of lease obligations subsequent to March 31, 2018 are as follows:Year ending March 31,

Millions of yen

2019

¥

399

Thousands of
U.S. dollars
$

3,764

2020

421

3,971

2021

246

2,320

2022

221

2,084

2023

186

1,754

1,401

13,2162024 and thereafterTotal¥ 2,87718$

27,141

7. Income Taxes
Income taxes imposed on the Company and its domestic consolidated subsidiaries comprise corporation, inhabitantsand enterprise taxes. The statutory tax rate applicable to the Company was approximately 28.2% for the year ended
March 31, 2017. Income taxes of six foreign consolidated subsidiaries (six in 2017) are based principally on the tax
rates applicable in their countries of incorporation.
The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2018and 2017 differ from the statutory tax rates for the following reasons:
2018
Statutory tax rates

2017

–%

28.2%

Unrecognized tax effect accounting on net tax loss carried forward
of consolidated subsidiaries

–

50.5

Exploration expenses deducted for income tax purposes

–

(6.8)

Dividends income, etc. not taxable for income tax purposes–(22.1)

Utilization of tax loss carried forward–(23.6)

Expenses not deductible for income tax purposes–

1.4

Consolidation adjustment for equity method

–

43.3

Change in valuation allowance–(10.8)

Foreign tax

–

18.9

Tax rate difference with consolidated subsidiaries–

5.0

Tax system differences for foreign consolidated subsidiaries

–

(9.2)

Consolidation adjustment–(22.9)

Other, net

–

(0.5)

–%

51.4%

Effect of:

Effective tax rates

Reconciliation of the effective tax rates reflected in the consolidated statements of income and the statutory tax
rates for the year ended March 31, 2018 is not disclosed due to the Company recognized loss before income taxes.
The “Tax Cuts and Jobs Act” was enacted in the United States of America on December 22, 2017 and the federal
income tax rate will be reduced from the year beginning on or after January 1, 2018. Due to the “Tax Cuts and Jobs
Act,” the federal income tax rate applied to consolidated subsidiaries of the Company in the United States of America
was changed from 35% to 21%.
As a result of this change, deferred tax liabilities in current liabilities, after deducting deferred tax assets, anddeferred tax liabilities in non-current liabilities, after deducting deferred tax assets, decreased by ¥90 million ($849
thousand) and ¥279 million ($2,632 thousand) as of March 31, 2018, respectively. In addition, income taxes - deferred
decreased by ¥370 million ($3,490 thousand) for the year ended March 31, 2018.

19

The significant components of deferred tax assets and liabilities at March 31, 2018 and 2017 are as follows:

Millions of yen
2018

Thousands of
U.S. dollars
2018

2017

Deferred tax assets:
Allowance for overseas investment loss

¥

615

¥

2,222

$

5,801

Net tax loss carried forward

10,562

8,222

99,641

Defined benefit liability

1,021

1,044

9,632

Depreciation

27,307

7,463

257,613

98

142

924

Payable for directors’ retirement benefit
Asset retirement obligations

4,161

4,249

39,254

Impairment loss on non-current assets

947

1,566

8,933

Loss on valuation of investment securities

824

2,038

7,773

Other

12,585

11,131

118,726

Subtotal

58,12438,081

548,339

Valuation allowance(39,215)(21,285)(369,952)

Total deferred tax assets

18,908

16,795

178,377

Reserve for exploration(6,704)(7,848)(63,245)

Valuation difference on available-for-sale securities(33,275)(26,745)(313,915)

Deferred tax liabilities:

Reserve for advanced depreciation of non-current assets

(271)

(279)

(2,556)

Undistributed earnings of foreign subsidiaries and associates(600)(1,994)(5,660)Foreign tax(2,659)(2,054)(25,084)

Loss on deemed transfer of shares(2,054)(2,054)(19,377)

Reserve for special depreciation

(112)

(140)

(1,056)

Defined benefit asset

(406)

(267)

(3,830)(1,886)(2,063)(17,792)

Total deferred tax liabilities(47,971)(43,448)(452,556)

Net deferred tax liabilities¥ (29,062)¥ (26,652)$ (274,169)

Other

8. Retirement Benefit Plans(1) Overview of retirement benefit plans
The Company and its domestic consolidated subsidiaries have defined benefit plans, i.e., defined benefit corporate
pension plans and lump-sum payment plans. The plans cover substantially all employees, and the amounts to be paid
are determined by their respective basic rates of pay at retirement, length of service, and termination reasons. Certain
domestic consolidated subsidiaries participate in the Smaller Enterprise Retirement Allowance Mutual Aid System andcalculate defined benefit liability and retirement benefit expenses using the simplified method.

20

(2) Defined benefit plans(a) The reconciliation between retirement benefit obligations at the beginning of period and the end of period(excluding plans applying the simplified method shown in (c)) is as follows:

Millions of yen
2018
Retirement benefit obligations at beginningof period¥

Thousands of
U.S. dollars
2018

2017

16,645

16,964$ 157,028

Service costs

985

998

9,292

Interest costs

145

148

1,367

Actuarial gains and losses arising during
periodRetirement benefits paid
Retirement benefit obligations at end of
period

¥

¥

(52)

78

(490)

(1,497)(1,543)(14,122)

16,645$ 153,075

16,226¥(b) The reconciliation between plan assets at the beginning of period and the end of period (excluding plans applying
the simplified method shown in (c)) is as follows:

Millions of yen
2018¥

Thousands of
U.S. dollars
2018

2017
15,278$ 141,584

Expected return on plan assets

150

152

1,415

Actuarial gains and losses arising during
period

612

251

5,773

Contribution from employer

492

515

4,641

Retirement benefits paid

(1,119)(1,189)(10,556)

15,008$ 142,867

Plan assets at beginning of period¥Plan assets at end of period

15,00815,144¥¥(c) The reconciliation between defined benefit liabilities of plans applying the simplified method at the beginning of
period and the end of period is as follows:

Millions of yen
2018
Defined benefit liability at beginning of
period¥Thousands of
U.S. dollars
2018

2017

981

¥

999

$

9,254

Retirement benefit expenses

223

220

2,103

Retirement benefits paid

(155)

(156)

(1,462)Contribution to plans

(87)

(83)

(820)

Defined benefit liability at end of period

21

¥

962

¥

981

$

9,075

(d) The reconciliation between retirement benefit obligations and plan assets at the end of period and defined benefit
liability and defined benefit asset on the consolidated balance sheets is as follows:

Millions of yen
2018¥

Thousands of
U.S. dollars
2018

2017
14,054$ 129,179(15,144)(15,008)(142,867)(1,451)(954)(13,688)

Unfunded retirement benefit obligations

3,496

3,572

32,981

Net defined benefit liability (asset) on
consolidated balance sheet

2,044

2,618

19,283

Defined benefit liability

3,496

3,572

32,981

Defined benefit asset(1,451)(954)(13,688)

Funded retirement benefit obligations
Plan assets

Net defined benefit liability (asset) on
consolidated balance sheet¥

13,693

2,044

¥

¥

2,618

$

19,283(e) The breakdown of retirement benefit expenses is as follows:

Millions of yen
2018¥

Service costs

Thousands of
U.S. dollars
2018

2017
985

¥

998

$

9,292

Interest costs

145

148

1,367

Expected return on plan assets

(150)

(152)

(1,415)

Amortization of actuarial gains and losses

316

301

2,981

Amortization of prior service costs

(103)

(103)

(971)

Retirement benefit expenses calculated bysimplified method

223

220

2,103

Retirement benefit expenses on defined
benefit plans

¥

1,417

¥

1,412

$

13,367(f) Remeasurements of defined benefit plans recorded under other comprehensive income
The breakdown of items recorded in remeasurements of defined benefit plans, before tax, recorded under othercomprehensive income is as follows:

Millions of yen
2018¥

Prior service costs

¥

(103)

981
¥

Total

2018

2017

(103)

Actuarial gains and losses

Thousands of
U.S. dollars

878

$

474
¥

370

(971)
9,254

$

8,283

(g) Remeasurements of defined benefit plans recorded under accumulated other comprehensive income
The breakdown of items recorded in remeasurements of defined benefit plans, before tax, recorded under accumulated
other comprehensive income is as follows:

Millions of yen
2018¥

Unrecognized prior service costs

¥

Total

22

2018

2017
289

¥

1,311

Unrecognized actuarial gains and losses

Thousands of
U.S. dollars

1,600

392

$

330
¥

722

2,726
12,367$

15,094(h) Plan assets(i) Breakdown of plan assets
The percentage of various assets to total plan assets by main category is as follows:
2018

2017

Debt securities

54%

55%

Equity securities

34%

34%

Cash and deposits

3%

3%

Other

9%

8%

Total

100%

100%

(ii) Determination of long-term expected rate of return
In order to determine the long-term expected rate of return on plan assets, the Group considers the current andexpected allocation of plan assets and the current and expected long-term rate of return from various assets
constituting plan assets.
(i) Actuarial assumptions
The main actuarial assumptions for the years ended March 31, 2018 and 2017 (weighted averages) are as follows:
2018

2017

Discount rate

0.9%

0.9%

Long-term expected rate of return

1.0%

1.0%

9. Shareholders’ Equity
The Companies Act of Japan provides that an amount equal to at least 10% of the amount to be disbursed as
distributions of capital surplus (other than capital reserve) and retained earnings (other than legal reserve) betransferred to the capital reserve and the legal reserve, respectively, until the total of capital reserve and the legal
reserve equals 25% of the capital stock account.
Such distributions can be made at any time by resolution of the shareholders’ meeting or the Board of Directors if
certain conditions are met.

10. Leases
Operating leases
Future minimum lease payments under non-cancelable operating leases subsequent to March 31, 2018 are as follows:(Lessee)Year ending March 31,

Millions of yen

2019

¥

2020 and thereafter

133

Thousands of
U.S. dollars
$

368

Total

¥

23

502

1,254
3,471

$

4,735

11. Financial Instruments(1) Overview(a) Policy for measures relating to financial instruments
The Group’s policy is to obtain operating funds ensuring funding liquidity and controlling risks. The Group raises
necessary funds through funds on hand and bank loans. Domestic capital investment is financed by Development
Bank of Japan Inc. and other commercial banks, and overseas business investment is financed by Japan Bank forInternational Cooperation and other commercial banks. The Group does not enter into derivative transactions for
trading or speculative purposes but uses them to hedge the undermentioned risks.
(b) Descriptions of financial instruments and related risk and risk management
Operating receivables such as notes and accounts receivable - trade are exposed to credit risk. The Group works toprevent bad debts by monitoring credit conditions, etc. of customers on a timely basis in accordance with internal credit
management rules.
Securities and investment securities mainly consist of equity securities of partner companies, and for those
exposed to market fluctuation risk, fair value evaluation is reported to the directors on a regular basis in accordancewith the internal regulations. Investment securities mainly consist of equity securities of INPEX CORPORATION
recorded at ¥140,671 million ($1,327,084 thousand) and ¥116,994 million as of March 31, 2018 and 2017, theproportions of which to investment securities are 84.1% and 78.9%, respectively.
Loans receivable are mainly loans to our subsidiaries and associates for their operating capital and are exposed tocredit risk and foreign currency fluctuation risk. The Group manages the credit risk appropriately by monitoring thecollection status of the loans receivable. The Group reduces the foreign currency fluctuation risk by being financed forthe loans receivable by bank loans denominated in the same foreign currency.
Notes and accounts payable – trade and accounts payable – other are due within one year. Accounts payable trade relating to LNG and accounts payable – other relating to capital investment are exposed to foreign currency
fluctuation risk, and the risk is hedged mainly by foreign exchange forward contracts.
Loans payable are mainly for domestic capital investment and overseas business investment. Floating interest rateloans are exposed to interest rate and foreign currency fluctuation risks, and the Group reduces the risks by providing
the funds from the loans to our subsidiaries and associates as loans with the corresponding floating rate and in thesame currency.
In addition, foreign currencies to provide for overseas business investment are exposed to foreign currency
fluctuation risk. The Group reduces such risk by utilizing foreign exchange forward contracts.
The Group utilizes foreign exchange forward contracts as mentioned above. Implementation and management ofderivative transactions are based on the internal regulations which prescribe the authorization and maximum upper
limit of the transactions, and the department responsible for derivative transactions executes transactions after
obtaining approval from the person responsible for authorization. The Group enters into transactions only withcreditworthy financial institutions to reduce the counterparty risk.
Liquidity risk associated with financing is managed mainly by preparing monthly financial plans.
(c) Supplemental information on fair value of financial instruments
As well as the values based on market prices, fair values of financial instruments include values which are reasonably
calculated when market prices do not exist. As the calculation of those values includes variable factors, those values
may vary if different assumptions are applied.
Also, for the contract amount, etc. regarding derivative transactions described in Note 12._Derivative Transactions,the contract amount itself does not indicate market risk related to derivative transactions.

24

(2) Fair value of financial instruments
Carrying value in the consolidated balance sheets, fair value and the difference as of March 31, 2018 and 2017 are as
follows. The financial instruments whose fair value is extremely difficult to determine are not included below.
Millions of yen
March 31, 2018

Carrying value

Cash and deposits¥ 115,313¥ 115,314

Notes and accounts receivable - trade

26,07326,073–

Short-term loans receivable

6,449

6,449

–

145,652

156,858

11,205

4,547

4,547

–

Total assets¥ 298,036¥ 309,243¥ 11,206

Notes and accounts payable - trade¥¥

Securities and investment securities
Long-term loans receivable

Fair value

Difference¥

1

13,544¥ 13,544

135,959

135,967

Total liabilities¥ 149,504¥ 149,511¥(7)

Derivative transactions (*)

¥

¥

¥

–

Long-term loans payable

4

4

–
(7)

Millions of yen
March 31, 2017

Carrying value

Cash and deposits¥ 109,488¥ 109,488

Notes and accounts receivable - trade28,28328,283–

Short-term loans receivable

4,348

4,348

–

Securities and investment securities

130,936

134,996

4,059

Long-term loans receivable

11,672

11,672–

Total assets¥ 284,728¥ 288,789

¥

4,060

Notes and accounts payable - trade¥

13,634¥ 13,634¥–

141,903

141,918

Total liabilities¥ 155,537¥ 155,552¥(14)

Derivative transactions (*)

¥

¥

¥

–

Long-term loans payable

25

(0)

Fair value

Difference

(0)

¥

0

(14)

Thousands of U.S. dollars
March 31, 2018

Carrying value

Fair value

Cash and deposits$ 1,087,858$ 1,087,867

Notes and accounts receivable - trade245,971245,971–

Short-term loans receivable

60,83960,839–1,374,075

1,479,792

105,70742,89642,896–

Total assets$ 2,811,660$ 2,917,386$ 105,716

Notes and accounts payable - trade

$

$

$

Securities and investment securities
Long-term loans receivable

Long-term loans payable

127,773

127,773

Difference$

9–

1,282,632

1,282,707

Total liabilities$ 1,410,415$ 1,410,481

$

(66)

Derivative transactions (*)

$

$

$

–

(*)

37

37

(66)

Net assets and liabilities arising from derivative transactions are presented on a net basis, and the liability
position is shown in parenthesis.

Note 1.

Calculation method for fair value of financial instruments and information on securities andderivative transactions

Assets・ Cash and deposits
As for deposits without maturities, the fair value is based on the carrying value since the fair value isconsidered to be the equivalent of the carrying value. As for deposits with maturities, the present value iscalculated by discounting future cash flows for each segment based on the term, using a deposit interest
rate which is assumed to be applied to a new deposit.
・ Notes and accounts receivable - trade
The carrying value is deemed as the fair value since these are scheduled to be settled in a short period oftime.
・ Short-term loans receivable
The carrying value is deemed as the fair value since these are scheduled to be settled in a short period oftime.
・ Securities and investment securities
The fair value of equity securities is based on the price on stock exchanges, and that of debt securities isbased on the price on bond markets or provided by counterparty financial institutions. The fair value ofinvestment trusts is based on the constant value or price provided by counterparty financial institutions.
Please refer to Note 4._Securities and Investment Securities, for matters relating to securities by holding
purpose.
・ Long-term loans receivable
The carrying value is deemed as the fair value for long-term loans receivable with floating interest rates
since these loans reflect the market interest rates in a short period of time and the carrying value
approximates the fair value unless the credit condition has changed dramatically since the loans were
executed.

26

Liabilities
・ Notes and accounts payable - trade
The carrying value is deemed as the fair value since they are scheduled to be settled in a short period oftime.
・ Long-term loans payable
With regard to floating rate loans, the carrying value is deemed as the fair value since these loans reflect themarket interest rates in a short period of time and the credit condition of the Company has not changed
dramatically since the loans were executed. For fixed rate loans, the present value is calculated bydiscounting the total amount of principal and interest for each segment based on the term, using a loaninterest rate which is assumed to be applied to a similar loan.
Derivative transactions
Please refer to Note 12._Derivative Transactions.
Note 2.

Financial instruments whose fair value is extremely difficult to determine

Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥ 23,889¥ 18,603$ 225,367

Carrying value:
Unlisted equity securities

The above securities are not included in securities and investment securities in the tables above, as there were nomarket prices available and it is extremely difficult to determine the fair value.
(3) Redemption schedule for monetary claims and securities with maturities
Millions of yen
March 31, 2018

Due in one
year or less

Cash and deposits¥

Due after one year
through five years

115,312¥–Due after five years
through ten years¥–

Due after
ten years¥–

Notes and accounts receivable - trade

26,073–––

Short-term loans receivable

6,449

–

–

–

500

–

–

–

–

–

–

–

–

4,542

5

–

Securities and investment securities:
Available-for-sale securities withmaturities:
Equity securities
Other
Long-term loans receivable
Total

¥

148,335

27

¥

4,542

¥

5

¥

–

Millions of yen
March 31, 2017

Due in one
year or less

Cash and deposits¥

Due after one year
through five years

109,487¥–

Due after five years
through ten years¥–

Due after
ten years¥–

Notes and accounts receivable - trade28,283–––

Short-term loans receivable

4,348

–

–

–

Equity securities

–

500

–

–

Other

2

–

–

–

–

11,667

4–

Securities and investment securities:
Available-for-sale securities withmaturities:

Long-term loans receivable
Total

¥

142,121¥

12,167¥

4¥–

Thousands of U.S. dollars
March 31, 2018
Cash and deposits

Due in one
year or lessDue after one year
through five years$ 1,087,849$–

Due after five years
through ten years$–

Due after
ten years$–

Notes and accounts receivable - trade245,971–––

Short-term loans receivable

60,839

–

–

–

4,716

–

–

–

–

–

–

–

–

42,84947–

Securities and investment securities:
Available-for-sale securities withmaturities:
Equity securities
Other
Long-term loans receivable$ 1,399,386

Total

$

42,849

$

47

$

–

(4) Scheduled maturities of long-term loans payable
Millions of yen
March 31, 2018

Due after one year
through five years

Due in one
year or lessDue after five years
through ten years

Due after
ten years

Long-term loans payable

¥

–

¥

39,561¥64,990¥31,908

Total

¥

–

¥

39,561¥64,990¥31,908

Thousands of U.S. dollars
March 31, 2018

Due after one year
through five years

Due in one
year or lessDue after five years
through ten years

Due after
ten years

Long-term loans payable$–$ 373,216$ 613,113$ 301,018

Total

$

–

$ 373,216$ 613,113$ 301,018

28

12. Derivative Transactions
The Group utilizes derivative transactions for the purpose of hedging its risks to adverse fluctuations in foreign
currency exchange rates but does not enter into such transactions for trading or speculative purposes.
The Group is exposed to credit risk in the event of nonperformance by the counterparties to the derivativetransactions, but any such risk would not be material because the Group enters into transactions only with creditworthy
financial institutions.
(1) Derivative transactions for which hedge accounting is not applied
Currency related
No currency related derivative contract was outstanding as of March 31, 2018.
Millions of yen
March 31, 2017

Contract
amount,etc.

Due after
one year

Fair
value
(*)

¥

2

¥

–

¥

(0)

¥

(0)

¥

2

¥

–

¥

(0)

¥

(0)

Unrealized
gain (loss)

Foreign exchange
forward contracts
U.S. dollars (Buying)
Total(*) Fair value is measured based on quotes, etc. provided by financial institutions, etc.

(2) Derivative transactions for which hedge accounting is applied
Currency related
Millions of yen
Contract
amount, etc.

March 31, 2018

Due after
one year

Fair
value
(*)

Thousands of U.S. dollars
Contract
amount, etc.

Due after
one year

Fair
value
(*)

$

$

Deferral hedge accounting
Foreign exchange
forward contracts
U.S. dollars (Buying)- Accounts payable - trade
U.S. dollars (Buying)- Accounts payable - other
British pound (Buying)- Accounts payable - other¥ 1,903

¥

–

¥

5

$ 17,952

–

47

10

–

(0)

94

–

(0)

14

–

(0)

132

–

(0)

14

–

(0)

132

–

(0)

3

$ 18,320

Allocation method
Foreign exchange
forward contracts
U.S. dollars (Buying)- Accounts payable - other¥ 1,942

Total

¥

–

¥

$

Millions of yen
Contract
amount, etc.

March 31, 2017
Deferral hedge accounting
Foreign exchange
forward contracts
U.S. dollars (Buying)- Accounts payable - other
British pound (Buying)- Accounts payable - other¥10

Due after
one year

¥

–

Fair
value
(*)

¥

(0)

29

–

0

368

–

(16)

–

¥ (16)

Allocation method
Foreign exchange
forward contracts
U.S. dollars (Buying)- Accounts payable - other
Total

¥
(*)

409

¥

Fair value is measured based on quotes, etc. provided by financial institutions, etc.

29

–

$

28

13. Asset Retirement Obligations(1) Asset retirement obligations recognized in the consolidated balance sheets
Asset retirement obligations recognized by the Group are determined based on the estimated costs ofdecommissioning oil and natural gas wells and production facilities in accordance with laws, land lease contracts, etc.
for wells and production facilities in Japan and overseas, and the appropriate discount rates.
The Group estimates the periods in which the obligations are paid out to be approximately 2 to 35 years (2 to 41
years in 2017) from acquisition of assets. This estimate is reasonably made based on the plans for decommissioning
wells and facilities or the producing lives of fields that the Group reasonably estimates by field if no such plan exists.
Discount rates applied are (0.217) to 2.287% ((0.217) to 2.287% in 2017) for domestic obligations and 2.26 to 7%(2.31 to 7% in 2017) for overseas.
Although the future costs to be incurred upon decommissioning and timing when the obligations are incurred are
based on the Group’s best estimate, uncertainty exists regarding both the amount and timing of incurring these costs.
Changes in the balance of asset retirement obligations for the years ended March 31, 2018 and 2017 are as follows:

Millions of yen

Thousands of
U.S. dollars

2017

2018

2018
¥

Balance at beginning of period

19,160¥18,330$180,7541

354

Accretion

485

455

4,575

Settlement

(753)

(148)

(7,103)Foreign currency translation adjustment

217

(41)

2,047

Other changes, net (*)

(223)

209

(2,103)

Increase due to acquisition of new assets¥

Balance at end of period

18,887¥

19,1609$178,179(*) Other changes, net, are related to the estimation changed for costs of decommissioning oil and natural gas wells
and production facilities.
(2) Asset retirement obligations other than those recognized in the consolidated balance sheets
The Group has obligations to restore sites to their original condition in accordance with laws, land lease contracts, etc.
regarding oil and natural gas production facilities. However, in the natural gas supply business, which is the Group’s
primary business operation, maintaining and ensuring the stable supply of natural gas is of high public interest;
therefore, even after completion of production activities, the Group plans to continue to use some of the assets held forthe purpose of producing and selling oil and gas on a permanent basis in order to fulfill the responsibilities as asupplier for users of natural gas by holistically integrating these assets. Thus, the Group does not recognize therelevant asset retirement obligations since it is impossible to determine the timing of decommissioning and estimate
asset retirement obligations on a reasonable basis as of March 31, 2018 and 2017.

30

The following table summarizes the details of balance of asset retirement obligations for the year ended March 31,
2018.
Millions of yen
March 31, 2018

Under provisions of Petroleum andInflammable Natural Gas Resources
Development Law

At beginningof period

Increase

Decrease

At end ofperiod

¥

¥

¥

¥

8,575

258

435

8,399

Under provisions of Environmental
Protection and Enhancement Act, etc.
enforced in the Province of Alberta,
Canada

5,974

561

675

5,860

Under provisions of Act on Prevention ofMarine Pollution and Maritime Disaster

2,196

48

–

2,245

Under provisions of land lease contracts and
other

2,413

277

308

2,382

1,419

¥ 18,887¥

Total

19,160

¥

1,146

¥

Thousands of U.S. dollars
March 31, 2018

Under provisions of Petroleum andInflammable Natural Gas Resources
Development Law

At beginningof period

Increase

Decrease

At end ofperiod

$

$

$

4,103

$ 79,235

80,896

2,433

Under provisions of Environmental
Protection and Enhancement Act, etc.
enforced in the Province of Alberta,
Canada56,358

5,292

6,367

55,283

Under provisions of Act on Prevention ofMarine Pollution and Maritime Disaster

20,716452–

21,179Under provisions of land lease contracts andother

22,764

2,613

2,905

22,471$ 180,754$ 10,811$ 13,386$ 178,179

Millions of yen

Thousands of
U.S. dollars

2017

2018

Total

14. Contingent Liabilities
At March 31, 2018 and 2017, the Group had the following contingent liabilities:

2018
Guarantee obligation for loans payable from financial institutions,
etc.:
¥

9,580

¥ 11,045

4,871

5,144

45,952

Employees (Housing loans)

136

215

1,283

Kumamoto Mirai LNG Co., Ltd.

57

64

537

3,429

6,272

32,349¥ 18,076¥ 22,741$ 170,528

INPEX North Caspian Sea, Ltd.
Sakhalin Oil and Gas Development Co., Ltd.

$90,377

Guarantee obligation relating to production facilities:
Kangean Energy Indonesia Ltd.
Total

31

15. Information Related to Consolidated Statement of Changes in Equity(1) Dividends paid to shareholders
2018
Date ofapproval

Resolution
approved byAmountAmount(Millions of(Thousands
yen)of U.S. dollars)

Type ofsharesAnnual General
CommonMeeting ofstock
Shareholders

June 28,
2017
November 10,
2017

Amountper share(Yen)

Amountper share(U.S.
dollars)

Shareholders’
cut-off date

Effective date

¥ 571

$ 5,386¥ 10$ 0.09March 31,2017

June 29,2017$ 5,386¥ 10$ 0.09September 30,
2017

December 13,
2017

Board ofDirectors

Common
stock

¥ 571

Resolution
approved byType ofsharesAmount(Millions ofyen)Amountper share(Yen)

Shareholders’
cut-off date

Effective date

¥ 1,428¥ 25

March 31,2016

June 27,
2016

¥ 285

¥5

September 30,

December 13,
2016

2017
Date ofapproval

Annual General
CommonMeeting ofstock
Shareholders

June 24,2016
November 8,
2016

Board ofDirectors

Commonstock

2016(2) Dividends with a shareholders’ cut-off date during the fiscal year but an effective date subsequent to thefiscal year
2018
Date ofapproval

June 28,2018Type ofsharesAmount(Millions ofyen)Annual General
CommonMeeting ofstock
Shareholders¥ 571

Resolution
approved byAmount(Thousands
Paid fromof U.S.
dollars)$ 5,386

Amountper share(Yen)

Amountper share(U.S.
dollars)

Shareholders’
cut-off date

Effective date

Retainedearnings¥ 10$ 0.09March 31,2018

June 29,2018

2017
Date ofapproval

June 28,2017

Type ofsharesAmount(Millions ofyen)

Paid fromAmountper share(Yen)

Shareholders’
cut-off date

Effective date

Annual General
CommonMeeting ofstock
Shareholders¥ 571

Retainedearnings¥ 10

March 31,2017

June 29,2017

Resolution
approved by32

16. Selling, General and Administrative Expenses
The main components of selling, general and administrative expenses for the years ended March 31, 2018 and2017 are as follows:

Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥11,073¥11,868$ 104,462

Retirement benefit expenses

797

784

7,518

Provision for directors’ bonuses

17

23

160

Provision for directors’ retirement benefits

21

21

198

Freightage expenses

4,121

4,454

38,877

Subcontract expenses

2,413

2,561

22,764

Depreciation

4,396

4,151

41,471

Selling, general and administrative expenses:
Personnel expenses
Significant components of personnel expenses:

Research and development expenses included in general and administrative expenses for the years ended
March 31, 2018 and 2017 were ¥192 million ($1,811 thousand) and ¥244 million, respectively.

17. Impairment Loss
For the purpose of recognition and measurement of impairment loss, business-use assets of the Group such as oil andgas fields are principally grouped into minimum cash generating units. However, idle assets are individually considered.
For the year ended March 31, 2018, the Group recorded an impairment loss on the following asset groups:

Millions of yen

Thousands of
U.S. dollars

2018

2018

Business-use assets related to shale gas development and production
project:
British Columbia, Canada¥

Buildings and structures

4,351

$

41,047

Wells

12,141

114,537

Mineral resource (Property, plant and equipment - Other)

50,987

481,00967,480$ 636,603

¥

Total

For the business-use assets related to shale gas development and production project (upper stream business), thecarrying value of the business-use assets was reduced to the recoverable amount as a result of the re-examination of
the development plan as an upper stream business alone, separately from Pacific NorthWest LNG project (“PNW
business”) in which LNG production was considered using the shale gas to be produced from this project as a result ofdecision made to abandon commercialization of PNW business, and the reduction was recorded as impairment loss inother expenses.
The recoverable amount of the asset group was measured at value in use and calculated by discounting future
cash flows at 8.9%.

33

18. Information on Related Party Transactions(1) Related party transactions
Principal transactions between the Company and Sakhalin Oil and Gas Development Co., Ltd., the associateaccounted for using the equity method, for the years ended March 31, 2018 and 2017 and related balances are as
follows.

Millions of yen
Transactions:Purchase of crude oil (*1)

2018

2017

2018

¥

¥

40,391$ 385,481

Millions of yen

Thousands of
U.S. dollars

40,861

Balances:

¥

2018

2017

2018
Accounts payable - trade

Thousands of
U.S. dollars

5,050

¥

4,334

$ 47,641

Principal transactions between the Company and Kangean Energy Indonesia Ltd., the associate accounted for using
the equity method, for the years ended March 31, 2018 and 2017 and related balances are as follows:

Millions of yen
Transactions:Collection of loans (*2)

¥

2018

2017

2018
–

¥

314

Millions of yen
Balances:$–Thousands of
U.S. dollars
2018

2017

2018

Thousands of
U.S. dollars

Short-term loans receivable

¥

–

¥

2,593

$

–

Long-term loans receivable

¥

–

¥

6,667

$

–

Major transactions between the Company and Kangean Energy Indonesia Ltd. and balances for the year ended March
31, 2018, have been omitted because they are immaterial.

Principal transactions between the Company and Fukushima Gas Power Co., Ltd. (FGP), the associate accounted forusing the equity method, for the years ended March 31, 2018 and 2017 are as follows:

Millions of yen
Transactions:

Pledge of collateral (*3)

2018

2017

¥

¥

16,916

Thousands of
U.S. dollars
2018–$ 159,584(*1) Prices for purchase of crude oil from Sakhalin Oil and Gas Development Co., Ltd. are determined based on themarket price.
(*2) The Company determines the reasonable interest rates of loans receivable from Kangean Energy Indonesia Ltd.
based on the market interest rates.
(*3) The Company provides FGP with certificates of FGP shares held by the Company as collateral for its borrowings
from financial institutions. The amount of the transactions indicates the balance of borrowings corresponding toassets pledged as collateral as of the year-end.

34

(2) Note to significant associates
For the years ended March 31, 2018 and 2017, the summarized consolidated financial information of all associates
accounted for using the equity method (12 companies in 2018 and 14 in 2017), including a significant associate,
Japan Drilling Co., Ltd. is as follows:

Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥ 164,968¥ 176,627$1,556,301

Total non-current assets

86,374

112,845814,849

Total current liabilities

112,673

54,1891,062,952

Total non-current liabilities

95,196

134,077

898,075

Total net assets

43,472

101,206

410,113

Net sales

228,955

203,709

2,159,952

Profit (loss) before income taxes(2,001)

12,198(18,877)

Profit (loss)(28,691)(3,227)(270,669)

Total current assets

19. Amounts per Share
Basic earnings (loss) per share is computed based on the profit (loss) attributable to common shareholders of parent
and the average number of shares of common stock outstanding during the period, which is 57,152 thousand shares
during the years ended March 31, 2018 and 2017.
Net assets per share is computed based on net assets available to common shareholders and the number ofshares of common stock outstanding at the year-end.
Yen2018¥ (541.69)

Basic earnings (loss) per share

7,402.41

Net assets per share

U.S. dollars
2018

2017
¥

60.24
7,655.26$(5.11)
69.83

Diluted earnings (loss) per share is not disclosed due to the absence of dilutive shares for the years ended March 31,2018 and 2017.

20. Cash Flow Information
Reconciliations between cash and cash equivalents in the consolidated statements of cash flows for the years ended
March 31, 2018 and 2017 and cash and deposits in the consolidated balance sheets as of March 31, 2018 and 2017
are as follows:

Cash and deposits

Millions of yen

Thousands of
U.S. dollars

2018

2017

2018

¥ 115,313¥ 109,488$1,087,858(17,120)(7,157)(161,509)

1,700

1,300

16,03799,892¥ 103,630$ 942,377

Time deposits with maturities in excess of three months
Short-term investments with maturities of three months or less, etc.:
Money management fund and other¥Cash and cash equivalents

As of March 31, 2017, cash and deposit of ¥58 million was restricted by a bank that issued bank guarantees for
subsidiaries and associates. There was no restricted cash and deposit as of March 31, 2018.

35

21. Other Comprehensive Income
Reclassification adjustments and income tax benefit (expense) on components of other comprehensive income for theyears ended March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen
2018

2018

2017

Valuation difference on available-for-sale securities:
Gains (losses) arising during the year¥

23,321¥

26,895$220,009

–

(87)

–

Pre-tax amount

23,32126,808220,009

Income tax benefit (expense)(6,530)(7,506)(61,603)

Valuation difference on available-for-salesecurities

16,791

19,302

158,405

Gains (losses) arising during the year

162

(244)

1,528

Reclassification adjustments

81

–

764

244

(244)

2,301

(1)

(0)

(9)

242

(244)

2,283

32

(4,283)

301

Gains (losses) arising during the year

665

172

6,273

Reclassification adjustments

212

198

2,000

Pre-tax amount

878

370

8,283

Income tax benefit (expense)

(245)

(103)

(2,311)Remeasurements of defined benefit plans

632

267

5,962

11

(569)

103

(838)

271

(7,905)

(826)

(297)

(7,792)2,040(2,103)

19,245

Reclassification adjustments

Deferred gains or losses on hedges:

Pre-tax amount
Income tax benefit (expense)
Deferred gains or losses on hedges
Foreign currency translation adjustment:
Gains (losses) arising during the year
Remeasurements of defined benefit plans:

Share of other comprehensive income of entities
accounted for using equity method:
Gains (losses) arising during the year
Reclassification adjustments
Share of other comprehensive income ofentities accounted for using equity method
Changes in equity interest:
Gains (losses) arising during the year¥

Total other comprehensive income

36

18,912¥

12,640$178,415

22. Segment Information(1) Overview of reporting segments
Reporting segments are defined as components of the Group for which separate financial information is available andwhose operating results are regularly evaluated by the Board of Directors to make decisions about how resources areallocated among the Group and assess its performance.
The Group is involved primarily in oil and natural gas related business. In addition to our domestic operations, theGroup develops its overseas operations through project companies established at each operational site.
Therefore, the Group consists of segments based on the operational site, and identifies “Japan,” “North America,”“Europe” and “Middle East” as its reporting segments.
“Japan” is engaged in exploration, development, production, purchasing, sales and transportation of crude oil andnatural gas, manufacture, purchasing, sales and transportation of petroleum products, and well drilling contracts, etc. inJapan.
“North America” is engaged in exploration, development, production, purchasing, sales, etc. of crude oil, natural
gas and bitumen (extra-heavy oil extracted from oil sands) in North America.
“Europe” is engaged in exploration of crude oil and natural gas in Europe.
“Middle East” is engaged in development, production, sales, etc. of crude oil and natural gas in the Middle East.
(2) Basis of measurement for the amounts of net sales, profit (loss), assets and other items for each reporting
segment
The accounting policies of each reporting segment are basically consistent with those disclosed in Note 2._Significant
Accounting Policies. Segment profit is measured on a basis of operating profit. Intersegment sales and transfers areaccounted for based on actual market prices.
(3) Information about net sales, profit (loss), assets and other items
Millions of yen

Total

Adjustments
andeliminations(Note 2)

Amounts on
consolidated
financialstatements(Note 3)

230,629¥¥

Reporting segment
March 31, 2018
Net sales:
Sales to third parties
Intersegment sales andtransfers
Total sales
Segment profit (loss)
Segment assets
Other items:
Depreciation andamortization (Note 4)
Share of profit (loss) ofentities accounted forusing equity method
Investments in entities
accounted for using theequity method
Increase in property, plantand equipment andintangible assets

North
AmericaJapan¥ 219,566¥

MiddleEast

Europe9,250 ¥

–

¥

Total

1,812 ¥ 230,629

Other(Note 1)¥–¥

Net sales:
Sales to third parties
Intersegment sales andtransfers
Total sales
Segment profit (loss)
Segment assets
Other items:
Depreciation andamortization
Share of profit (loss) ofentities accounted forusing equity method
Investments in entities
accounted for using theequity method
Increase in property, plantand equipment andintangible assets

230,6290
219,566
22,497
109,943–
9,250(6,615)
216,914

–
–
(74)
4,437

30,37632,1891,366
11,04030,376
261,006
17,173342,334––(9)–30,376
261,006
17,163342,334(30,376)(30,376)(8,399)357,204–
230,629
8,764
699,539

9,362

13,2852

293

22,943–

22,943426

23,370(7,783)(3,330)–(5)(11,118)

8,505(2,613)11(2,601)

771

11

–

286

1,069

24,39925,468–25,46830,772

11,08180–

41,934–

41,934(132)

41,802

Reporting segment
March 31, 2017

–

North
AmericaJapan¥ 199,505¥

5,688 ¥

MiddleEast

Europe

–

¥

Total

1,936 ¥ 207,130

Other(Note 1)

¥

–

¥

Total

Adjustments
andeliminations(Note 2)

207,130¥–

Millions of yen
Amounts on
consolidated
financialstatements(Note 3)¥

207,1300199,505
20,52593,634–
5,688(8,620)287,369

–
–
(268)
4,103

25,242
27,179(1,120)24,05425,242
232,373
10,515409,162

–
–
(57)
–

25,242
232,373
10,458409,162(25,242)(25,242)(9,773)
337,576–
207,130
685
746,739

9,160

5,751

2

293

15,207–

15,207482

15,690(6,972)

(125)

–

(2)

(7,099)2,939(4,160)(95)(4,255)

771

3,943

–

286

5,001

24,412

29,413

029,41328,67839,8402–

68,520–68,520(134)

68,38537

Thousands of U.S. dollars
Amounts on
Adjustments
consolidated
andfinancialeliminations
statements(Note 2)
(Note 3)

Reporting segment
March 31, 2018

North
AmericaJapan

Net sales:
Sales to third parties
Intersegment sales andtransfers
Total sales
Segment profit (loss)
Segment assets
Other items:
Depreciation andamortization (Note 4)
Share of profit (loss) ofentities accounted forusing equity method
Investments in entities
accounted for using
the equity method
Increase in property,
plant and equipment
and intangible assets

87,264 $MiddleEast

Europe–$Other(Note 1)

Total

$ 2,071,377$

17,094 $ 2,175,745 $

02,071,377
212,235
1,037,198–
87,264(62,405)
2,046,358

–
–
(698)
41,858286,566
303,669
12,886104,150

88,320125,330

18(73,424)(31,415)

7,273

290,301

Total–$ 2,175,745

286,566
2,462,320
162,0093,229,566

–
–
(84)
–

2,764

216,443

–

(47)

103

–

104,537754$–$ 2,175,745

286,566
2,462,320
161,915
3,229,566(286,566)(286,566)(79,235)
3,369,849–
2,175,745
82,6796,599,424–

216,443

4,018

220,471(104,886)

80,235(24,650)103(24,537)

2,698

10,084230,179

240,264–

240,264–

395,603–395,603(1,245)394,358

Note 1: “Other” which does not belong to reporting segments includes the Southeast Asia, etc.
Note 2: “Adjustments and eliminations” includes the following:(a) Segment profit (loss)
Millions of yen

Thousands of
U.S. dollars

2017

2018

2018
Intersegment elimination

¥

3

¥

(8,402)

Corporate expense (*)
Total

¥

(8,399)1$¥(9,773)

28(79,264)(9,775)$(79,235)(*) “Corporate expense” represents mainly general and administrative expenses and experiment and researchexpense that are not allocated to reporting segments.
(b) Segment assets
Millions of yen

Thousands of
U.S. dollars

2017

2018

2018
Intersegment elimination¥

Corporate assets (*1)

(631)
3,619

Other assets (*2)
Total

¥

(453)
3,894

$

(5,952)
34,141

354,216

334,135

3,341,660¥ 357,204¥ 337,576$ 3,369,849(*1) “Corporate assets” represents mainly the assets administrated by the head office that are not allocated toreporting segments.
(*2) Assets allocated to reporting segments consist of property, plant and equipment, intangible assets andrecoverable accounts included in investments and other assets. “Other assets” consists of property, plant andequipment, intangible assets and assets other than recoverable accounts, which are not allocated to reporting
segments.
Note 3: Segment profit (loss) is reconciled to operating profit in the consolidated statements of income.
Note 4: Depreciation and amortization in “Other items” of North America segment includes depreciation of inactive non-current
assets of ¥7,797 million ($73,556 thousand), which is recorded in other income (expenses).

38

(4) Related information(a) Information by product and service

2018

Millions of yen

Thousands of
U.S. dollars

2017

2018

Sales to third parties¥

Crude oil

89,173¥$81,428841,254

Natural gas

60,431

55,329570,103

LNG

21,935

20,278206,933

–

669

–

4,512

–

42,566

Contract services

8,484

10,35480,037

Oil products/merchandise

40,16233,354

378,886

Other

5,930

5,715

55,943

207,130$ 2,175,745

Bitumen
Diluted bitumen

¥

Total

230,629¥(b) Information by geographical area

2018

Millions of yen

Thousands of
U.S. dollars

2017

2018

Net sales:
¥

Japan

147,303¥$ 1,389,650

132,919

Canada

8,762

5,219

82,660Russia40,90540,437

385,896

Iraq

32,22627,215304,018

Other

1,431

1,338

13,500207,130$ 2,175,745

¥

Total

230,629¥

Note: Net sales are accounted for by country or geographical area on the basis of the location in which products havebeen delivered or services have been rendered.

2018

Millions of yen

Thousands of
U.S. dollars

2017

2018

Property, plant and equipment:
95,985$ 1,053,518

Canada¥211,236

281,332

1,992,792

Other

6,579

6,472

62,066

383,790$ 3,108,396

Millions of yen

Thousands of
U.S. dollars

2017

2018

Japan

¥

Total

111,673¥

329,490¥(c) Information by major customer

Segment

2018

Net sales:
BP Singapore Pte. Ltd.

Japan

¥

–

¥

25,527$–

Information by major customer for the year ended March 31, 2018 is omitted since there were no sales to single
external customer accounting for 10% or more of net sales in the consolidated statement of income.

39

(5) Information about impairment loss on non-current assets by reporting segment
Millions of yen
Reporting segment
March 31, 2018

Japan

North
America

Impairment loss¥

¥67,480241EuropeMiddle
East

¥

¥

–

Corporate/eliminations

Other

–

¥

–

¥

–

Total

¥ 67,721
Millions of yen

Reporting segment
March 31, 2017

Japan

Impairment loss

¥

62

North
America

EuropeMiddle
East

¥

¥

¥

–

–

Corporate/eliminations

Other

–

¥

–

¥

–

Total

¥

62

Thousands of U.S. dollars
Reporting segment
March 31, 2018

Japan

North
America

EuropeMiddleEast

Impairment loss$

$636,603

$

$

2,273

–

Corporate/eliminations

Other

–

$

–

$

–

Total

$638,877

23. Subsequent Events
Sale of oil sands assets of Hangingstone 3.75 section area in the province of Alberta, Canada
On April 3, 2018 (local time of Calgary, Canada), Japan Canada Oil Sands Limited (“JACOS”), a foreign
consolidated subsidiary of the Company, entered into an agreement with Greenfire Hangingstone Operating
Corporation, a wholly owned subsidiary of Greenfire Oil and Gas Ltd. (Headquarters: Alberta, Canada) on the sale of
all of the JACOS’ participating interest and related assets including wells and facilities in the Hangingstone 3.75 section
area in the province of Alberta, Canada. The closing of the transaction is subject to approvals and consents of related
stakeholders including the Supervisory Office for the Province of Alberta Energy Regulator (AER).
Upon the closing of the transaction, the Company expects to post approximately US$30 million as non-operating profit
resulting primarily from the reversal of the provision for asset retirement obligations in the year ending March 31, 2019.

40

41

Japan Petroleum Exploration Co., Ltd.

Inquiries:
Japan Petroleum Exploration Co., Ltd.
Investor Relations Group,Media and Investor Relations Dept.
TEL: +81- 3- 6268- 7111
FAX: + 81- 3- 6268- 7302