Annual Report 2011
Year ended March 31, 2011

A Firm Commitment to
Sustainable Energy

Contents

INPEX Snapshot002

1

Performance / Message

011

Business Overview

1.1

Financial and Operating Highlights012

pp. 28 –29

1.2

Financial and Operating Highlights (Graphs)

014

1.3

Greetings from the Representative Directors

016

1.4

Message from the President018

pp. 32 – 33

2

Business Overview

025

Two Large-Scale LNG Projects

2.1

Proﬁle and History

026

2.2

Oil and Natural Gas Business

028

2.3

Market Environment and Forecasts

030

2.4

Strengths and Strategies

032

2.5

Investment Plans and Financial Strategies

034

3

Project Overview

Shortcuts
Performancepp. 12 –15, p. 22

Market Environment
pp. 30 –31

Strengths and Strategies

pp. 40 – 45

In conjunction with theAnnual Report 2011, pleaserefer to the Fact Book 2011
for detailed quantitative
data.

3.1

Reserves, Production and Investment Plan

036

3.2

Project Overview

038

3.3

Special Report 1: Ichthys LNG Project

040

3.4

Special Report 2: Abadi LNG Project044

Project Overview by Region

046

3.5

We continue to contribute to the creation of
afﬂuent societies by realizing stable and efﬁcient
supplies of energy.
INPEX CORPORATION currently conducts 71 oil and gas projects
in 26 countries, making us Japan’s largest oil and gas explorationand production (E&P) company. We are engaged in exploration,
development and production activities around the globe and have thelargest oil and gas reserves and production volume of any Japanese
E&P company, ranking among the global independent upstream
companies that follow after the oil majors.
INPEX CORPORATION will continue to engage actively in oil
and gas exploration, development and production projects, including
large LNG projects, with the goal of achieving sustained growth in our
corporate value as we steadily progress toward realizing a stable and
efﬁcient supply of energy.
The theme for this Annual Report 2011, upon consideration of ourcurrent business environment and progress in our projects, is “A Firm
Commitment to Sustainable Energy” (meaning a ﬁrm commitment toachieving a stable and efﬁcient energy supply and to the projects that
support it).
We will focus on this theme in explaining the INPEX Group’s(hereafter referred to as “INPEX," We" or “the Company“) corporate
and operating information to our stakeholders.
Our shares are listed on the First Section of the Tokyo Stock Exchange (Code: 1605) and areincluded in the Nikkei average (the Nikkei 225).

FORWARD-LOOKING STATEMENTS
This annual report includes forward-looking information thatreﬂects the Company’s plans and expectations. Such forwardlooking information is based on the current assumptions
and beliefs of the Company in light of the information
currently available to it, and involves known and unknown
risks, uncertainties and other factors. Such risks, uncertainties
and other factors may cause the Company’s actual results,
performance, achievements or ﬁnancial position to be materiallydifferent from any future results, performance, achievements or
ﬁnancial position expressed or implied by such forward-looking
information.
Such risks and uncertainties include, without limitations,ﬂuctuations in the following:•the price of and demand for crude oil and natural gas;•exchange rates; and•the costs associated with exploration, development,
production and other related expenses.
The Company undertakes no obligation to publicly updateor revise any information in this annual report (including
forward-looking information).

NOTES REGARDING FIGURES
Financial ﬁgures in this annual report have been basicallyrounded to the nearest unit (millions, billions, etc.) for
convenience.
The “Project Overview by Region” section (starting on
p. 46) basically describes the operating situation as of June 30,
2011.
Figures in parentheses denote negative amounts.

Asia & Oceania / Eurasia / Middle East & Africa / Americas / Japan

4

Corporate Responsibility
and Management

4.1

Corporate Social Responsibility
HSE (Health, Safety and Environment) Basic Policies /Environmental Impact of Our Business / Environmental
Technologies / Operational Safety / Community Support /Development of Human Resources

DISCLAIMER
Information contained in this Annual Report is not an offer
or a solicitation of an offer to buy or sell securities. You arerequested to make investment decisions using your own
judgment. Although the Company has made sufﬁcient effort
to ensure the accuracy of information provided herein, theCompany assumes no responsibility for any damages or
liabilities including, but not limited to, those due to incorrect
information or any other reason.

035

4.2

063

064

Corporate GovernanceManagement System / Independence of Outside Directors andDirector Compensation / Internal Control and Compliance
System / A Special-Class Share / Disclosure

069

4.3

Board of Directors, Auditors and Executive Ofﬁcers074

5

Financial / Corporate Information 077

5.1

Five-Year Financial Information

078

5.2

Background Information

079

5.3

Management's Discussion and Analysis of Financial
Condition and Results of Operations

082

5.4

Business Risks

089

5.5

Oil and Gas Reserves and Production Volume

097

5.6

Consolidated Financial Statements /Notes to Consolidated Financial Statements

100(Oil and Gas Accounting Policies and Treatment)

5.7

Report of Independent Auditors

117

5.8

Subsidiaries and Afﬁliates

118

5.9

Oil and Gas Glossary120

5.10 Corporate Information

121

INPEX CORPORATION Annual Report 2011001

INPEX Snapshot

No.1

Our oil and gas reserves and production volume
are the largest among Japanese E&P companies.
We aim to establish a ﬁrm position as a global
independent upstream company, ranking after
the oil majors.

Our reserves (proved and probable) stoodat approximately 4.13 billion barrelsof oil equivalent (boe) as of March 31,
2011, and production for the year ended
March 31, 2011, was approximately 423
thousand barrels of oil equivalent per day(boed). These ﬁgures make our oil andgas reserves and production volumes thelargest of any Japanese E&P company.
Internationally, the Company ranks among
the mid-tier global independent upstream
companies, after the oil majors. We will
maintain and expand our reserves andproduction volumes by commercializing
our large LNG projects and acquiring
new interests. Our goal is to continue toexpand so as to establish a ﬁrm position
among the top group of independent
upstream companies.

Net production volume(Thousand boed)■Crude oil■Natural gas

500

400

405

405

182

187

223

218

2009

2010

423
184

300

200

239

100

0

Photo: Bontang LNG Plant, Indonesia

2011

For details, please refer to pp. 36–37.

002

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011003

INPEX Snapshot

in

71
26

Projects
Countries

We seek to disperse business riskby creating a well-balanced asset
portfolio.

Photo: Kashagan Oil Field, Kazakhstan

We avoid excessive dependence on
certain regions from the viewpoint ofcountry and operating risks, and seek toachieve a well-balanced portfolio througha combination of different projects, by
resource (crude oil and natural gas), bystage (exploration, development andproduction), by contract, etc. As of June30, 2011, in addition to Japan, we areengaged in 71 projects in 26 countries
in Asia, Oceania, the Middle East, Africa,
Eurasia and the Americas.

Number of overseas projects(As of June 30, 2011)

Eurasia

Asia & Oceania

534

Projects

Projects

Middle East & Africa

Americas13

18

Projects

Projects

For details, please refer to pp. 38–39.

004

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011005

INPEX Snapshot

Two Large-Scale
LNG
Projects

We are engaged in two large-scale
LNG projects that should contributeto our corporate growth.

We discovered two large gas ﬁelds,
Ichthys (Australia) and Abadi (Indonesia),
in 2000. The ﬁnal investment decision(FID) for Ichthys is scheduled for Q4 2011,
with production scheduled to begin in
Q4 2016. Abadi is under preparation fordevelopment according to the ﬂoating
LNG concept. The production volume ofthese projects will be on a massive scale— equivalent to 15% or more of Japan’scurrent LNG annual import volume.
We are proceeding aggressively tocommercialize both projects with the goalof achieving further corporate growth.

Ichthys and Abadi LNG Projects
LNG production volume:

2.5 million tons/year(First phase development)

Jakarta Office

Ichthys LNG
Project(Australia)

Abadi
LNG Project(Indonesia)
Darwin Office
LNG production volume:

8.4 million tons/year

Perth Office

Photo: Ichthys LNG Project, Australia

For details, please refer to pp. 40–45.

006

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011

007

INPEX Snapshot

Three
Fundamental Strategies

Consolidated net sales:¥ 943.1billion

We continue to pursue threefundamental strategies in our efforts
to achieve corporate growth.

Consolidated net income:¥ 128.7billion
Despite the appreciation of the Japanese
yen during the year, consolidated net
sales for the year ended March 31, 2011,were up 12.2% to ¥943.1 billion andconsolidated net income was up 20.0% to¥128.7 billion due to the increase in sales
prices of oil and natural gas.

We are engaged in three fundamental
strategies in pursuit of achieving our goalof raising our net production level to
800,000–1 million boed by 2020.

1. Sustainable Expansion of Our
E&P BusinessWe will pursue continuous maintenanceand expansion of our production andreserves by operating and maintaining
exploration, development and production
projects.

Net sales / Net income (consolidated)■Net sales (¥billion）■Net income (¥billion）

1,200

200

1,076.2
900

943.1
145.1 840.4

150

100

3. Evolution into a Company that
Offers Diversiﬁed Forms of Energy

50

300

0

0

2009

2010

2011

For details, please refer to pp. 12 –14.

008

We will develop a high-value-added
gas supply chain by organically linking
overseas gas resources with the Japanesemarket.

128.7

107.2

600

2. Establishment of a Gas Supply
Chain and Proactive Expansion of
the Gas Business

INPEX CORPORATION Annual Report 2011

Photo: Financial results presentation for the year ended
March 31, 2011 (held on May 12, 2011)

We will pursue growth by evolving into a
company that contributes to sustainablegrowth by ensuring the development andsupply of various forms of energy.
Photo: Construction of domestic natural gas pipeline (Shizuoka Line)For details, please refer to pp. 32–33.

INPEX CORPORATION Annual Report 2011009

Photo: Blaydin Point, Northern Territory, Australia

For details, please refer to pp. 64 –73.

010

INPEX CORPORATION Annual Report 2011

1.1

Financial and Operating Highlights

012

1.2

Financial and Operating Highlights (Graphs)

014

1.3

Greetings from the Representative Directors

016

1.4

Message from the President

018

Business Overview

Performance / Message

Financial /Corporate Information

We have created and continue tomaintain our own comprehensive HSE(Health/Safety/Environment) Management
System. We also seek coexistence withthe local communities in which we operateby contributing to their development, andwe continue to enhance our corporate
governance so as to achieve more soundand efﬁcient management.

1

Ichthys LNG Project, at offshore rig

Project Overview

We continue to contribute to the buildingof an afﬂuent society by providing a stableenergy supply, as we operate in harmony
with the environment and local communities.

Corporate Responsibility
and Management

Corporate Social
Responsibility

Performance / Message

INPEX Snapshot

Performance / Message

Financial and Operating Highlights
INPEX CORPORATION and Consolidated Subsidiaries

2007

Years ended March 31,

2008

2009

2 010

2 0 112 0 1 1 (U.S. dollars)

Net Sales¥943.1billion

Results of Operations¥

969,713¥ 1,202,965

625,918

812,411757,127

Operating income (Millions of yen / Thousands of U.S. dollars *1)

559,077

714,211Net income (Millions of yen / Thousands of U.S. dollars *1)

165,092

EBIDAX (Earnings before interest, depreciation and amortization and exploration) *2

321,790

Net sales (Millions of yen / Thousands of U.S. dollars *1)
Gross proﬁt(Millions of yen / Thousands of U.S. dollars *1)(Millions of yen / Thousands of U.S. dollars *1)¥

1,076,165¥

840,427¥

943,080$ 11,341,912

542,259

608,247

7,315,057

663,267

461,668

529,743

6,370,932

173,246

145,063

107,210

128,699

1,547,793

382,654

275,871242,543

274,9313,306,446(Up ¥102.7 billion, 12.2% year on year)
Despite a decrease in sales volumeof natural gas and the effects of yen
appreciation, net sales increased 12.2%
year on year, due to oil and gas priceincreases.

Net sales analysis

Financial Position¥ 1,608,107¥ 1,807,901¥ 1,768,045

Net assets excluding minority interests *3 (Millions of yen / Thousands of U.S. dollars *1)

1,028,895

1,157,371

Net debt *4 (Millions of yen / Thousands of U.S. dollars *1)(169,667)(328,353)

Total assets (Millions of yen / Thousands of U.S. dollars *1)¥

2,013,778¥ 2,680,380$ 32,235,478

1,271,123

1,387,500

1,996,890

24,015,515(324,109)(349,211)(688,807)(8,283,909)¥840.4 billion(for the year ended
March 31, 2010)

Decrease in sales volume:¥ 7.8 billion
Increase inunit price:

Cash Flows¥177.1billion

Cash ﬂows from operating activities (Millions of yen / Thousands of U.S. dollars *1)¥

231,982¥363,995¥

230,352¥

241,373¥274,094$ 3,296,380

Cash ﬂows from investing activities (Millions of yen / Thousands of U.S. dollars *1)(209,243)(261,767)(240,168)(251,812)(844,511)(10,156,476)

Cash ﬂows from ﬁnancing activities (Millions of yen / Thousands of U.S. dollars *1)

13,794(45,228)(46,090)

68,937548,057

6,591,185

Cash and cash equivalents at end of the year
(Millions of yen / Thousands of U.S. dollars *1)

189,417

222,270

162,845

216,395

182,025

Yen appreciation:¥68.4 billion
Others:¥1.8 billion

2,189,116¥943.1 billion
0

Per Share Data
Earnings per share (EPS) (Yen / U.S. dollars *1)¥ 70,423.45¥ 73,510.14

61,601.60¥ 45,553.56¥ 40,832.40

Net assets per share (Yen / U.S. dollars *1)

436,467.92

491,168.09

540,100.10

589,548.88

546,958.90

6,577.98

7,000.00

7,500.00

8,000.00

5,500.00

6,000.00

72.16

9.9%

10.2%

13.0%

12.1%

14.7%

14.7%

Cash dividends per share (Yen / U.S. dollars *1)
Payout ratio (%)

¥

$

800

1,000

(¥ billion)
1,200

Net Income¥128.7billion(Up ¥21.5 billion, 20.0% year on year)(18.6)%(36.1)%(31.2)%(30.6)%(48.9)%(48.9)%

Equity ratio (%) *6

64.0%

64.0 %

71.9%

68.9%

74.5%

74.5%

Return on equity (ROE) (%) *7

17.7%

15.8 %

11.9%

8.1%

7.6%

7.6%

20.4%

21.4 %

14.6%

10.5%

10.8%

10.8%

Net debt / Net total capital employed(%) *5

Net return on average capital employed(Net ROACE) (%) *8

The 20.0% year-on-year increase was due
mainly to the rise in net sales.

Net income analysis• Increase in net sales:¥102.7 billion• Decrease in exploration expenses andallowance for exploration: ¥3.8 billion

Stock Indices
Stock price (Yen / U.S. dollars *1)(Billions of yen / Millions of U.S. dollars *1)¥ 1,020,000
2,405.6¥ 1,110,000
2,617.8¥

683,000¥

686,000

1,610.8¥

631,000

1,617.9$

2,306.8

7,589• Increase in cost of sales:

27,743• Increase in income taxes :Price earnings ratio (PER) (Times)

14.5

15.1

11.1

15.1

15.5

15.5

Price book-value ratio (PBR) (Times)

2.3

2.3

1.3

1.2

1.2

1.2

Net proved reserves (Million boe) *9

1,770

1,645

1,598

1,475

1,308

1,308

Net production (Thousand boed) *10

418

423

405

405

423

423

217,646

315,684

294,364

235,721248,005

2,982,622• Others:

Operating Data

Exploration and development expenditures(Millions of yen / Thousands of U.S. dollars*1) *11*1 The translation of yen amounts into U.S. dollar amounts is included solely for convenience,as a matter of arithmetic computation only, at ¥83.15 = U.S.$1.00, the approximate rate ofexchange in effect on March 31, 2011.
*2 EBIDAX = Net income + Minority interests + Deferred tax + (1 – Tax rate) x (Interest
expense – Interest income) + Exchange proﬁt and loss + Depreciation and amortization+ Amortization of goodwill + Recovery of recoverable accounts under production sharing(capital expenditures) + Exploration expenses + Provision for exploration projects +Provision for allowance for recoverable accounts under production sharing*3 Net assets excluding minority interests = Net assets – Minority interests*4 Net debt = Interest-bearing debt – Cash and cash equivalents – Time deposits – Publicand corporate bonds and other debt securities with determinable value*5 Net debt / Net total capital employed = Net debt / (Net assets + Net debt)*6 Equity ratio = Net assets excluding minority interests / Total assets*7 ROE = Net income / Average of net assets excluding minority interests at the beginningand end of the year

*8 Net ROACE = (Net income + Minority interests + (Interest expense – Interest income) × (1– Tax rate)) / (Average of sum of net assets and net debt at the beginning and end of theyear)*9 The proved reserves are evaluated in accordance with SEC regulations. The reserves covermost of INPEX Group projects including equity method afﬁliates. The reserves of the
projects which are expected to be invested a large amount and affect the company future
result materially are evaluated by DeGolyer & MacNaughton, and the others are doneinternally.
*10 Production volumes = Production volumes are calculated in accordance with SEC regulations.
The production volume of crude oil and natural gas under the production sharing contracts
entered into by INPEX corresponds to the net economic take of our group.
*11 Exploration and development expenditures = Exploration expenditures + Development
expenditures + Acquisition costs

Oil price(Increased ¥500 per shareyear on year)

Exchange rate
(Yen/U.S.$)

Including the midterm dividend of ¥3,000
per share, the total cash dividends for theyear were ¥6,000 per share (a year-on-yearincrease of ¥500).

150

150

120
120
90
90
60

60
2006
Jan

INPEX CORPORATION Annual Report 2011¥43.6 billion¥4.8 billion¥6,000 per share

Oil price (ICE Brent) and exchange rate (Japanese yen against U.S. dollar)(U.S.$/bbl)¥36.6 billion

Cash Dividends

30

012

600

491.07

Financial IndicesMarket capitalization(for the year ended
March 31, 2011)

2007
Jan

2008
Jan

2009
Jan

2010
Jan

2011
Jan

2011
Apr

INPEX CORPORATION Annual Report 2011013

Net income, Net margin

Net sales (by product)

EBIDAX *1

Net proved reserves (by product) *8400 (¥ billion)

2,000 (Million boe)

(Earnings before interest,
depreciation and amortization and exploration)■Net income■Crude oil ■Natural gas ■Other

Net margin(%) 40200 (¥ billion)

1,500 (¥ billion)

382.7

28.4

27.5

840.4

391.1

28.9

107.2

100
356.2

650.4
326.4

558.0

486.9

2010

13.5

12.8

13.6

■Net assets excluding minority interests
2,000 (¥ billion)

10

0

2007

2011

Net assets excluding minority
interests *2, Equity ratio *3

2008

2009

2010

Equity ratio■Net debt

Net debt / Net total capital employed

0 (¥ billion) -169.7-328.4 -324.1 -349.2 -688.8 (%) 0

-200

0

2009

2010

■Cash dividends per share

2011

1,087

1,048

3,000

1,308

980

2007

2008

2009

2010

0

(%) 25

71.9

Comparison with global E&P
companies in production volume *12500 (Thousand boed)

64.0

6,000

6,000

74.5
60

68.9

30

-400

-31.2

0

0

2010

-30

20

2008

2009

2010

20.4

300

10

200

405

182

187

2008

1,308

2009

2010

2011

Reserves to production ratio *13
Proved and probable reserves

Proved reserves

5

100

1,200

10

2008

243

242

223

239

2009

2010

218

0

2011

2007

2008

2009

2010

11.6

10.7

10.8

10.0

8.5

0

2007

2011

2008

25 (Times)

400 (%)

80 (%)

8 (Incident)

2009

2010

2011

LTIF

15.1

15.1

15.5

300

Over the medium tolong term, the average
reserve replacement
ratio is expected to be
100% when the reserves/ contingent resources at
Ichthys and other fields
are booked as proved
reserves with FID.

293

100

11.1

TRIR and LTIF both drasticallydecreased due to thoroughsafety management.

64.5
60

TRIR

6

57.9

5.26
56.3
46.8

40

3.86

4

11.9

7.6

5

2008

2009

2010

2011

32.8

50

25

0

2007

2008

2009

2010

2011

/ (Average of sum of net assets and net debt at the beginning and end of the year)*8 The proved reserves are evaluated in accordance with SEC regulations. The reserves cover mostof INPEX group projects including equity method afﬁliates. The reserves of the projects which are
expected to be invested a large amount and affect the company future result materially are evaluatedby DeGolyer & MacNaughton, and the others are done internally.
*9 Reserves Data as of December 31, 2010, except for INPEX (as of March 31, 2011) in accordancewith SEC regulations. The reserves cover most of INPEX Group projects including equity method
afﬁliates. The reserves of the projects which are expected to be invested a large amount and affectthe company future result materially are evaluated by DeGolyer & MacNaughton, and the others aredone internally. Oil reserves include bitumen and synthetic oil. Government-owned companies are
not included. Santos does not disclose proved reserves by products.
*10 Probable reserves as of March 31, 2008, 2009, 2010 and 2011 are calculated in accordance with
SPE/WPC/AAPG/SPEE guideline (SPE – PRMS) approved in March 2007. The volumes are sum of

2

20

35

0

2007

*1 EBIDAX = Net income + Minority interests + Deferred tax + (1 – Tax rate) x (Interest expense –Interest income) + Exchange proﬁt and loss + Depreciation and amortization + Amortization of
goodwill + Recovery of recoverable accounts under production sharing (capital expenditures) +Exploration expenses + Provision for exploration projects + Provision for allowance for recoverable
accounts under production sharing*2 Net assets excluding minority interests = Net assets – Minority interests*3 Equity ratio = Net assets excluding minority interests / Total assets*4 Net debt = Interest-bearing debt – Cash and cash equivalents – Time deposits – Public and corporate
bonds and other debt securities with determinable value*5 Net debt / Net total capital employed = Net debt / (Net assets + Net debt)*6 ROE = Net income / Average of net assets excluding minority interests at the beginning and end of
the year*7 Net ROACE = (Net income + Minority interests + (Interest expense – Interest income) × (1 – Tax rate))

INPEX CORPORATION Annual Report 201110

LTIF, TRIR *16

10.8

0

2011

20

Exploration success ratio(3-year average) *15

122

5

2010

26.7

0

61

0

423

Reserve replacement ratio(3-year average) *14

10

8.1
20,000

29.8

28.2
24.5

800

14.5

10.5

30

Price earnings ratio (PER)

14.6

17.7

32.3

1,600

184

400

ROE
Net ROACE

15.8
40,832405

21.4

45,55440,000

15

0

2007

15

15

181

10.2

0

2011

73,51061,602

175

423

-48.9

Return on equity (ROE) *6
Net ROACE *780,000

12.1

2,000

-60

2007

25 (%)

423

-45

-800

100,000 (Yen)

400

418

14.7
13.0
9.9

-600

2011

Earnings per share (EPS)

014

1,475

5,500

-30.6

Cash and cash equivalents andpublic bonds were greater thaninterest-bearing debt, resulting
in negative figures.

2009

1,598

40 (Years)

Santos (AU)
Woodside (AU)
Talisman (CA)INPEX
Anadarko (US)BG (UK)
Apache (US)Occidental (US)Statoil (NO)ENI (IT)
ConocoPhillips (US)TOTAL (FR)Chevron (US)RD Shell (UK/NL)
BP (UK)
ExxonMobil (US)

500

2008

1,645

0

■Crude oil ■Natural gas
5,000 (Thousand boed)

7,000

-36.1

2009

20

7,500

4,000

2007

1,770
1,000

2007

■Crude oil ■Natural gas

Payout ratio

2,000

2011

Net production (by product) *11

8,000

-15

1,271.1
1,028.9 1,157.4

60,000

1,139

0

2008

10,000 (Yen)-18.6

1,387.5

70,423

2,818

1,959

1,308

500

8,000
90

2008

4,126

2,500

1,500

1,000

100

Cash dividends per share,
Payout ratio

1,996.9 (%) 120

2,929

4,000
1,000

2007

Net debt *4, Net debt /Net total capital employed *5

4,404

3,728

8,000
409

200

2011

Due to the equity offering ofAugust 2010, our financial
condition is very secure.

2007

495

242.5
20

0

2009

1,475

899

14.4

50

0

2008

550

17.0

300

64.0

274.9

1,598

3,176

2,721

4,000

Santos (AU)
Talisman (CA)INPEX
Woodside (AU)
Anadarko (US)BG (UK)
Apache (US)Occidental (US)Statoil (NO)ENI (IT)
ConocoPhillips (US)TOTAL (FR)Chevron (US)RD Shell (UK/NL)
BP (UK)
ExxonMobil (US)

607.4

1,645
558

398.3

332.9

2007

275.9

4,774
4,366

12,000

1,500

300

128.7

27.1

783.5
600

30

145.1

943.1

29.4

630

321.8

150

1,076.2

969.7
900

165.1

1,203.0■Proved reserves ■Probable reserves
5,000 (Million boe)

25,000 (Million boe)

1,770

Net proved
and probable reserves *10■Crude oil ■Natural gas■Crude oil ■Natural gas

173.2
1,200

Comparison with global E&P
companies in proved reserves *9

Performance / Message

Financial and Operating Highlights (Graphs)

0

0

2007

2008

2009

2010

2011

2007

2008

proved reserves and probable reserves by SPE – PRMS after deduction of proved reserves by SEC
regulations. Probable reserves as of March 31, 2007 are calculated in accordance with the guideline
established by SPE and WPC (1997 SPE/WPC). The volumes are sum of proved reserves and probablereserves by 1997 SPE/WPC after deduction of proved reserves by SEC regulations. The proved
reserves are evaluated in accordance with SEC regulations. The reserves cover most of INPEX groupprojects including equity method afﬁliates. The reserves of the projects which are expected to beinvested a large amount and affect the company future result materially are evaluated by DeGolyer &MacNaughton, and the others are done internally. Reserve volumes of Joslyn oil sand project (mining)
as of March 31, 2008 are based on the evaluation by RYDER SCOTT.
*11 Production volumes are calculated in accordance with SEC regulations. The production volume ofcrude oil and natural gas under the production sharing contracts entered into by INPEX corresponds
to the net economic take of our group.
*12 Production data for the year ended December 31, 2010, except for INPEX (for the year ended
March 31, 2011). Production ﬁgures are in accordance with SEC regulations. Amounts attributable

2009

2010

2011

1.20

1.16

2010

2011

0.89

0.96
2009

to the equity method are included. Government-owned companies are not included. Oil production
includes bitumen and synthetic oil.
*13 Reserves to production ratio (Years) = Reserves as of the end of the year / Production in the year
*14 Reserve replacement ratio (3-year average) = Proved reserves increase including acquisition /production*15 Exploration success ratio (3-year average) = The number of net productive exploratory wells drilled /The number of net exploratory wells drilled
Exploratory well : An exploratory well is a well drilled to ﬁnd a new ﬁeld, to ﬁnd a new reservoir in aﬁeld previously found to be productive of oil or gas in another reservoir or to extend the limits of aknown reservoir.
*16 LTIF : Rate of injuries resulting in fatalities or lost time per million hours worked
TRIR : Rate of recordable injuries (fatalities, lost time, restricted workdays, and medical treatment) per
million hours worked

INPEX CORPORATION Annual Report 2011015

Performance / Message

Greetings from the Representative Directors

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

Naoki Kuroda

Masatoshi Sugioka

Toshiaki Kitamura

ChairmanVice Chairman

President & CEO

Toshiaki Kitamura

Masatoshi Sugioka

President & CEO

Vice Chairman

Naoki Kuroda
Chairman016

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011017

Performance / Message

Message from the President
To Our Stakeholders

A FirmCommitment

Sustainable

toEnergySeeking to establish
a ﬁrm position among
the leading global
upstream companies

Toshiaki Kitamura
President & CEO

018

INPEX CORPORATION Annual Report 2011

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

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

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

3. Management Strategies for This Business Environment

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

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

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

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

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

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

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

pp. 30–31

pp. 32–33

for more about Market Environment

for more about Management Strategies

INPEX CORPORATION Annual Report 2011

Performance / Message

2. The Business Environment Surrounding
Oil and Gas Development

Achieve net production volume of
800,000 –1 million boed by 2020and establish a ﬁrm position in the
top group of global independent
upstream companies with the rightbalance of assets, ﬁnances andhuman resources.
We must not be optimistic about
the path to achieve our goals. In realterms, it will require measures to deal
with the upside risk in development costs
associated with a rise in materials prices,
as well as overcoming the increasingly
high technological hurdles associatedwith new exploration and development
projects in polar regions or deep water.
Also, as the April 2010 oil spill in the
Gulf of Mexico demonstrated, we must
work even harder to establish accident
and disaster response measures,
maintain safety operations and minimize
environmental impact. The appropriate
and timely response to country risk, suchas political instability in the Middle Eastand North Africa, is also important.
I believe we can overcome theseissues one by one by fully employing
our characteristic strengths, such as
our experience, our solid ﬁnancial
basis and the technical capabilities
we have amassed at every stage of
our exploration, development andproduction efforts.
We are strengthening our safety
management by establishing ties
with our partners and by putting our
experience as an operator to use. We arealso striving to cultivate personnel who
can operate successfully in the global
arena by actively dispatching younger
employees to overseas sites, where
they can accumulate experience andtechnical skills. Such efforts serve to help
us enhance our presence as a global
independent upstream company.

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

INPEX CORPORATION Annual Report 2011021

Consolidated net sales¥ 943.1 billion

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

up 20.0% (year on year)

Ichthys LNG Project

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

022

INPEX CORPORATION Annual Report 2011

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

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

Performance / Message

4. Results for the Past Year and Our Business Activities

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

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

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

34

p.
for more about our Investment
Plans and Financial Strategies

To invest approximately ¥4 trillion
steadily over the seven-year period
beginning with the year ended March
31, 2011, we increased capital througha public offering in August 2010.

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

INPEX CORPORATION Annual Report 2011023

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

Payout ratio

10,000 (Yen)

8,000(%) 25

8,000

20

6,000

6,000

15

5,500
14.7
4,000

13.0

10

12.1

2,000

5

0

0

2009

024

2010

2011

INPEX CORPORATION Annual Report 2011

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

Sincerely,

Toshiaki Kitamura
President & CEO

July 2011

Business Overview
2.1

Proﬁle and History

026

2.2

Oil and Natural Gas Business

028

2.3

Market Environment and Forecasts

030

2.4

Strengths and Strategies

032

2.5

Investment Plans and Financial Strategies

034

Performance / Message
Business Overview

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

Project Overview

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

Geological survey

Corporate Responsibility
and Management

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

Financial /Corporate Information

6. Message to Our Stakeholders

Net production volume

Proﬁle and History

423(Thousand boed)

Natural gas

418

423
405

Crude oil

Our company was founded in October 2008 through the business integration of INPEXCORPORATION and Teikoku Oil Co., Ltd. Utilizing several decades of performance indeveloping oil and natural gas ﬁelds and the experience gained through 71 projects in 26
countries (as of June 30, 2011), we are actively promoting the exploration, development
and production of oil and natural gas.

Thousand boed

405

Mission and Vision
175

181

184
182

187

223

218

2009

2010

Business Overview

The mission of the INPEX is to provide a stable and
efﬁcient supply of energy to customers by exploring anddeveloping oil and natural gas resources both domesticallyand throughout the world. Through its business, we
aim to become an integrated energy company, which
contributes to our community and makes it more livableand prosperous.

Business Overview
INPEX CORPORATION

Teikoku Oil Co., Ltd.

Founded in 1966

INPEX is a corporate group formed by 62 subsidiaries (53consolidated subsidiaries),19 afﬁliates (12 equity-method
afﬁliates) and three subsidiaries of afﬁliates (as of March
31, 2011). Our main business activities are the exploration,
development, production and sale of oil and natural gas
both domestically and throughout the world in areas such
as Asia, Oceania, Eurasia (Europe-NIS), the Middle East,
Africa and the Americas. We also invest in companies
conducting such activities.

Founded in 1941

A leading company in overseas
development of oil and natural gas

A pioneer in the development of oil andnatural gas in JapanFounded to develop oil resources in Indonesia, thecompany operates in Indonesia and Australia as
its core areas, as well as in other areas such as the
Caspian Sea, the Middle East and South America.

Has conducted development and production ofdomestic oil and gas ﬁelds, including the Minami
Nagaoka Gas Field, one of the largest gas ﬁelds inJapan. Also has conducted development in various
regions of Central and South America and North Africa.

Proﬁle243■Number of projects / Number of countries:
26 countries, 71 projects

242

239

■Consolidated net sales: ¥943.1 billion (for the year ended March 31, 2011)
INPEX CORPORATION■Common stock: ¥290,809,835 thousand

October 2008 / Full integration between three companies:
INPEX Holdings Inc., INPEX CORPORATION and Teikoku Oil Co., Ltd.

■Consolidated total assets: ¥2,680.4 billion (as of March 31, 2011)■Consolidated number of employees: 1,854 (as of March 31, 2011)

History
1940

1960

1970

1980

1990

2000

2008

1941

1962

1979

1992

2005

2006

Teikoku Oil Co., Ltd., isfounded.

Japan’s ﬁrst long-distancenatural gas pipeline between
Tokyo and Niigata Prefecture(Tokyo Line) is completed.

The Minami Nagaoka Gas Field withJapan’s largest reserve of natural gas
is discovered in Niigata Prefecture.

Becomes the ﬁrst Japanese company
to participate in an oil development
project in Venezuela.

Exploration rights in the
East China Sea are granted.

Business integration

as a semi-governmental company
to unify the existing Japaneseoil exploration companies atthat time. (Becomes a privatecompany in 1950.)

1973
1970

Japan Oil Development Co., Ltd. (JODCO), is founded.
Acquires interests in the ADMA Block located offshore
Abu Dhabi in UAE.

Discovers the Kashagan,
Ichthys and Abadi ﬁelds.

2005
2001
1984

2004

Teikoku Oil Co., Ltd.
INPEX CORPORATIONINPEX CORPORATIONINPEX CORPORATION Annual Report 2011as a corporation promoting the independent
development of overseas oil resources in accordancewith a contract signed with PERMINA (nowPERTAMINA).

Corporate name ischanged to Indonesia
Petroleum, Ltd.

2006
The Australian Federal Government grants Major
Project Facilitation (MPF) status to the Ichthys LNG
Project.

Acquisition of Japan Oil Development Co., Ltd. (JODCO).
Listing on the First Section of the Tokyo Stock Exchange.

1966
1975

Production starts in the ACG
Oil Field in Azerbaijan.

Changes corporate name to
INPEX CORPORATION.

Production at Minami
Nagaoka Gas Field begins
with completion of the
Koshijihara Gas Plant.
North Sumatra Offshore Petroleum
Exploration Co., Ltd. (precursor to INPEXCORPORATION), is founded.

2011

The joint holding
company INPEX Holdings
Inc., is founded by INPEXCORPORATION and
Teikoku Oil Co., Ltd.

2000

Attaka Field is discovered in Offshore
Mahakam (Indonesia).

026

2007

1998
Acquires interests in the Offshore North
Caspian Block, Kazakhstan; Permit WA 285-P,
offshore Australia; and the Masela Block,Indonesia.

2008
INPEX CORPORATION is founded.
INPEX CORPORATION is founded througha merger of INPEX, Teikoku Oil and INPEX
Holdings. The company headquarters is
moved to Akasaka, Tokyo.

INPEX CORPORATION Annual Report 2011027

Oil and Natural Gas Business

What is oil and natural gas?

Oil/gasCap rockReservoirrockHeat/pressure

Thermoforming of organic matter

Source rock

Business Overview

The business activities of the oil industry can be envisioned as the ﬂow of a river. The
upstream consists of the development and production of oil and natural gas. The midstream
is where products are transported. The downstream refers to reﬁning and sales. Our
mainstay business is to handle operations in the upstream including discovery, drilling,collecting and selling crude oil and natural gas, which exists underground. As shown in thebusiness ﬂow below, business activities in the upstream can be further classiﬁed into theacquisition of blocks, exploration, appraisal, development and production and sales.

Both oil and natural gas are types of organic matter (hydrocarbons) formed from a combination of carbon andhydrogen. Oil is a chemical compound in which large numbers of carbon molecules and hydrogen molecules arejoined together. Under normal conditions (one atmosphere, which is about 15 pounds per square inch; conditions
suitable for human life), oil is a liquid. Conversely, natural gas is a gas under normal conditions. Although there
are differences between the properties of liquid and gas, both burn well.
The oil and gas generated deep underground have a lighter speciﬁc
gravity than the water and soil in geological layers and therefore rise upward
over a period of many years. However, when contacting high-density
geological layers through which they cannot pass, the oil and gas stop risingand form an oil ﬁeld or a gas ﬁeld.
Depending on the excavation site, crude oil and natural gas exhibit
a variety of differences in terms of color (from colorless and transparent toSamples of crude oil and condensate
black), speciﬁc gravity, viscosity and amount of impurities.

Satellite

Offshore drilling rig (platform)

Onshore rig

ConsumerdemandLNG tanker

LNG receiving terminal

Offshore geophysical survey

Business ﬂow (image)

STEP 1

STEP 2

STEP 3

STEP 4

STEP 5Acquisition of
BlocksExploration

Appraisal

Development

Production andSales

We collect extensive informationon laws and country risks related toareas in which oil and natural gas are
expected to exist. We then apply andbid for mining rights and/or explorationand development rights, and enteredinto a contract for exploration anddevelopment.

In addition to terrestrial geologicalsurveys, we utilize geophysical surveys
conducted through aerial photographs,
satellite images and seismic waves inorder to assess the potential subsurface
accumulations of oil and natural gas.
Furthermore, we drill exploratory wellsin order to conﬁrm the presence of oil
and gas ﬁelds.

Once the presence of oil and natural gas
has been conﬁrmed through exploration
activities, we drill an appraisal well toassess the extent of the oil and gas ﬁelds.
We conduct a production test and evaluate
the amount of reserves. In addition, we
make comprehensive judgments regarding
the commercial viability of the ﬁelds. For
example, we examine proﬁtability andcreate development plans.

We drill production wells for the
production of oil and natural gas. We
also construct processing facilities
to separate oil and gas, and remove
impurities and production, and shipping
facilities such as a pipeline to transport
oil and gas.

We perform production and operation
management such as reﬁning/
treatment to create products from theoil and natural gas excavated fromthe production wells. We also perform
marketing and sales for the produced
crude oil, condensate, LPG, natural gas
and LNG.

Contracts with government ofoil-producing countries

Geophysical surveys

Production test

Drilling of production wells

Reﬁning/treatment of natural gas

We investigate underground tectonics such as
the hardness and concentration of rocks thatform the layers of geophysical exploration.

Oil or natural gas is produced in a test to
conﬁrm if there is a sufﬁcient amount forcommercialization.

We drill a well deep into the ground while
joining individual pipes of about 10 meters inlength. The tip of the pipe is equipped witha special drill known as a “bit.” The bit drills
through hard rock and digs into the ground.

After separating oil and removing impurities(e.g., carbon gas, hydrogen), we ship natural
gas that can be used as a product.

Contracts can mainly be divided into concessionagreements and production sharing contracts.
Both contracts normally contain a commitment
for required exploration work in order to locate
oil and natural gas.

Investment for
further exploration,purchase of assets,etc.
(Expansion of reserves andproduction volume)

Christmas tree

To pipeline

High pressure
separator

Refrigeration unit
CO²
separator
Water, oil,
sand

1
028

INPEX CORPORATION Annual Report 2011

Water, oil

CO²

2

3
INPEX CORPORATION Annual Report 2011029

Market Environment and Forecasts
Effect on Our Performance
The sensitivity index for oil prices
and exchange rates when forecasting
consolidated net income for the year
ending March 31, 2012 has been
calculated at approximately ¥2.0 billion
in the event of fluctuations of $1 per
barrel of crude oil and approximately¥2.4 billion in the event of exchange rate
fluctuations of ¥1/$1.

Outlook for Global Energy Demand

The shift to natural gas is
becoming more prominent.
Higher demand for natural gas is
expected, particularly in emerging
economies such as China. Although
total energy demand is predicted toincrease 1.2% annually until 2035, afor natural gas include alternative
demand from other energy sources
such as nuclear power, changes inpolicy concerning climate changesuch as the suppression of carbon
dioxide emissions and rising crude oil
prices, which lead to the selection ofreasonably priced natural gas (i.e., theshift to natural gas).

Natural gas demand by country
or region

World primary energy
demand by fuel
Oil

U.S.
China

EuropeIndia

Middle East
Japan

Coal
Biomass
Renewable and other

Natural gas
Nuclear power
Hydroelectricity

5,000 (Million toe)800 (Billion m³)

4,000

600

3,000

2% annual growth

400

Natural gas

2,000
200

1,000

0

2015

2020

2025

2030

2035

1980

1990

2000

2010

030

INPEX CORPORATION Annual Report 2011

Depreciation (Appreciation) of ¥1/$1 in theexchange rate:+¥2.4 billion (–¥2.4 billion)

Note:
These are trial calculations of the impact on term net profits in the year ending March 31, 2012, in the event of a pricefluctuation of $1 per barrel in crude oil (Brent) or in the event of exchange rate fluctuations of ¥1/$1. Actual impact
will depend on changes in production volume, capital expenditures and recovery costs, and the amount of impact
may not be strictly dependent upon the absolute level of oil prices or the exchange rate.

INPEX is among the mid-tierglobal independent upstream
companies, just behind the oil
majors, and we aim to establish
a firm position in the top groupof global upstream companies.

Currently, our company’s net production
volume is 423 thousand barrels of oil
equivalent per day (boed; for the year
ended March 31, 2011) and our proved
reserves are 1.31 billion boe (as of March
31, 2011). This places us among the
mid-tier global independent upstream
companies.
Through final investment decisions(FIDs) and the commercialization oflarge-scale LNG projects, we will seek
to increase our proved reserves andnet production, then to establish afirm position as a global independent
upstream company by 2020.

Oil companies that conduct upstream
activities can be divided into three
categories: 1) national oil companies ofgovernments in oil-producing countries
that possess oil and natural gas assets, 2)major international oil companies known
as the “oil majors” and 3) companies
that specialize in upstream activities andare second in scale to the oil majors.

Oil companies throughout
the world
National oil companies
Saudi Aramco, CNPC, Petrobras, etc.

Oil majors
ExxonMobil, BP, Shell, TOTAL, etc.

Global independent
upstream companies
INPEX, Apache, BG, etc.

2020

2030 2035

Source: IEA, June 2011

Crude Oil Prices and Exchange Rates

The oil and natural gas business is greatly
affected by changes in crude oil prices andexchange rates. As a result of continued
investment from the financial markets,
the propensity for fluctuation in crude oil
prices exceeds the level of change that the
supply-demand balance (fundamentals)
would normally dictate. Currently, eventhe recovery of demand is uncertain due
to a stagnant economy. The price of Brent
crude is projected to reach high levels
that exceed $90–$100 per barrel. Thereis the possibility of further price increases
in the future. The average exchange rate
for the year ended March 31, 2011, wasin the range of ¥85 to $1. Moreover, yen
appreciation continued with an averageexchange rate of ¥81 to $1 during AprilJune, 2011.

+¥2.0 billion (–¥2.0 billion)

0

2008

Source: IEA, June 2011

Crude oil price stands at a highlevel, and appreciation of theyen continues.

Crude oil prices increase (decrease) by $1/bbl:

Comparison with Major Independent Upstream Companies

Proved reserves, net production volume and the market value of the major upstream players

Crude oil price trend

ICE Brent
Source: Petroleum Association of Japan (PAJ), etc.

(U.S.$/bbl)
150
120
90
60

High level($90–$100 or higher)

30
0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Exchange rate trend (Japanese yen against U.S. dollar)
Source: Mizuho Corporate Bank

(Yen/U.S.$)
140
130

Appreciation of
yen continues

120
110
100
90
0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Proved reserves and production volume indicated in this chart are from documents disclosed by the major upstream companies.
The size of circle shows market value of each company as of April 15, 2011.

Occidental (US)

1,000

800

BG (UK)To achieve 800,000–1 million
boed in net production by 2020
through commercialization oflarge-scale LNG projects, etc.

Anadarko (US)600

Talisman (CA)PTTEP (Thailand)423
thousand boed

Greater energy demand in the worldis expected especially in emerging
economies such as China and India.
According to the World Energy Outlook
announced by the International
Energy Agency (IEA) in June 2011, it ispredicted that global energy demand in2035 will increase by approximately 1.4
times compared to 2008 and that oil andnatural gas will account for more thanhalf of all energy sources.

2% annual increase is also forecast for
natural gas. The ratio of natural gas
within total energy demand is forecast
to overtake coal by 2030 and toincrease to more than 25% by 2035 (IEA
Outlook).
Other factors significantly
contributing to increased demand

Net production volume (Thousand boed)

Global energy demand isforecast to increase evenmore, particularly in emerging
economies.

Fluctuation of consolidated net income for the year ending March 31, 2012:

Business Overview

Global energy demand is forecast to increase even more, particularly in emerging
economies. Natural gas is attracting particular attention as an important fossil fuel thatprovides energy with a low environmental impact. Accordingly, demand is expected
to rise more quickly than that for other forms of fuel, such as coal and oil. Meanwhile,
crude oil price stands at a high level, and appreciation of the yen continues.

400(Present)

Santos (AU)Probable reserves to shift
to proved by FID oflarge-scale LNG projects, etc.

200

Woodside (AU)0

Our netproduction
volumeOur proved
and probablereserves

Apache (US)Seeking to establish
a firm position as a
global independent
upstream company
by 2020

1.0

Proved reserves: 1.31 billion boe

2.0

3.0

4.0

Probable reserves: 2.82 billion boe
Proved reserves (Billion boe)

INPEX CORPORATION Annual Report 2011031

Strengths and Strategies
INPEX seeks to improve sustainable corporate value while fulﬁlling our social responsibility
to supply energy stably and efﬁciently. We will enhance our four strengths and advance ourbusiness based on three medium- to long-term fundamental strategies. By 2020, our goal is toincrease our net production volume to 800,000–1 million boed and establish a ﬁrm position asa global independent E&P company following the oil majors.
While the upstream business is our core business, we will establish a gas supply chain andintend to evolve into a company that supplies diversiﬁed energy.

Three Medium- to Long-Term Fundamental Strategies

1. Strong Reserve /Resource Base
Reserves and resources, which are thesource of corporate value, are the criticalfactor in the oil and natural gas E&P
business. INPEX has the largest proved
and probable reserves of 4.13 billion boeof any Japanese company. Our reservesto-production ratio is 8.5 years for proved
reserves, 26.7 years if probable reserves
are added. Beyond our probable reserves,
we also have an abundance of possible
reserves and contingent resources. We
expect to continue increasing proved andprobable reserves over the medium tolong term.
p. 36 for details.

2. A Large-scale LNG Project
Operator
INPEX is in the process of developing
two of the world-leading in scale LNG
projects at Ichthys in Australia and Abadi
in Indonesia. We are the ﬁrst Japanesecompany to develop such large-scale
projects as an operator. The expected
production volume from both projects isvast, being equivalent to more than 15%
of Japan’s current LNG annual import
volume. We are focusing on these priority
projects, which contribute to the stablesupply of LNG and increase the corporate
value of our company.
pp. 40 – 45 for details.

3. Gas Supply Chain
INPEX owns a domestic natural gas pipeline
network stretching approximately 1,400 km
that connects domestic and overseas gas
assets to the Japanese gas market. We plan
to add value by establishing a gas supply
chain through linkage between this networkand our major LNG projects. Speciﬁcally,
our construction of Naoetsu LNG Receiving
Terminal which commenced in July 2009,is moving right along with the terminal
scheduled to enter operation in 2014.

4. Strong Financial Position
A strong, healthy balance sheet andplentiful cash reserves are essential
for oil and gas E&P companies. This
reﬂects both the high degree of risk
associated with these activities and theneed to have sufﬁcient funds on handto take advantage of major investment
opportunities quickly as they arise. As aresult of a public offering held in August
2010, our company has secured a strong
ﬁnancial position. As of March 31, 2011,
our company had an equity ratio of 74.5%
and the ratio of net debt to net total
capital employed was –48.9%. (Cash andcash equivalents and public bonds weregreater than interest-bearing debt)
Compared with the oil majors and otherinternational peers, this represents asound level of ﬁnancial strength.
p. 34 for details.

p. 62 for details.

[Fundamental strategy 1]
Sustainable Growth of
E&P Activities
We give top priority to the large-scale
LNG projects in Ichthys and Abadi, as
well as to other existing large-scale
projects. For new projects, we conduct
exploration activities mainly in focusedregions that are predicted to have large
reserves. We also seek to acquire assets
both directly and/or indirectly throughM&A activity.
We are also working to acquire
promising interests by developing
unconventional hydrocarbon resources
such as oil sands and enhancing
advanced technology for oil recovery
techniques. For existing projects whichhave entered the later production
phase and their proﬁtability is expected
to decline, we will improve our asset

portfolio quality by selling off, etc., andexpand our balanced portfolio.

[Fundamental strategy 2]
Establishment of a Gas Supply
Chain and Proactive Expansionof the Gas Business
To respond to the domestic demand
for natural gas, we construct an LNG
receiving terminal that organically links
domestic/overseas natural gas resources
to the domestic market. We will also
work to expand our existing pipeline
network.
Furthermore, to expand ourdomestic gas business, we will develop
new gas demand and seek cooperation
with domestic gas energy companies.
Moreover, we will consider participatingin overseas LNG receiving terminal andtransportation activities required for thedomestic/overseas gas trading business.

[Fundamental strategy 3]
Evolution into a Company
that Offers Diversiﬁed Forms
of Energy
We seek to create new added value by
developing and supplying a variety ofenergy forms that include the reductionof environmental impact and renewableenergy.

Strong Reserve/Resource Base

Large-scale
LNG Project Operator

Gas Supply Chain

Strong Financial Position

4.13 billion boe

Ichthys Abadi

Domestic gas
pipeline network

Equity ratio: 74.5%

1,400 kmemployed: -48.9%(Indonesia)

Long-term
production outlook:Three Fundamental Strategies for Growth (Medium to Long Term)

Four Strengths (Current)(Australia)

Through our four strengths
and three fundamental
strategies, we will seek toreach net production of
800,000–1 million boedby 2020.

800,0001 million boed

Our Strengths and Medium- to Long-Term Strategies to Expand Net Production Volume(Proved and probable reserves)

In terms of environmental issues,
we actively work to enhance energy
efﬁciency and reduce carbon dioxide
emissions by employing methods such
as CCS (carbon dioxide capture andstorage).
In the ﬁeld of renewable energy,
we will utilize alliances and business
partnerships with domestic/global
energy companies in order to develop
forward-looking technologies insuch areas as gas-to-liquids (GTLs).
Furthermore, from a medium- to longterm perspective, we will seek businessparticipation in renewable energy
including solar power generation,
geothermal power and storage batteries.

Business Overview

INPEX’s Four Strengths

By implementing three medium- tolong-term fundamental strategies while
utilizing our four strengths, our company
seeks to achieve a ﬁrm position among
the global independent E&P companies
by increasing our production volume
to 800,000–1 million boed. While theupstream business is our core business,
we will establish a gas supply chain andintend to evolve into a company that
supplies diversiﬁed energy.

Sustainable growth of
E&P activities

Net debt/Net total capital

Establishment of a gas
supply chain and proactive
expansion of the gas
business

Evolution into a company
that offers diversified
forms of energyNewprojects

Commercialization of existing projects

Solidify our position
among the top groupof independent
upstream companies
with well-balanced
capital, financial andpersonnel resources

Ichthys LNG Project (Plan to start production in Q4 2016) / Abadi LNG Project, etc.

Existing
projects(Years to March 31)

Trend innet
production
volume(around700,000 boed(expected))

380

418

423

405

405

2006

20 07

2008

2009

2 010

(Thousand boed)

423

417

440

450

446

435

2011

2 012

2 013

2 014

2 015

2 016

(Actual)2020

Note: The forecasts for net production for the years ending March 31, 2012 to 2016, are premised upon the same oil price (Brent crude at $95/barrel) as that used in forecasting the results for that year.
The production volume of crude oil and natural gas under the production sharing contracts entered into by the INPEX Group corresponds to the net economic take of our group.

032

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011033

Equity

Cash Flow

Bank Loans

Proceeds from public offering(approx. ¥520 billion)(in August 2010)

Operating cash flow
Cash and cash
equivalents on hand

Lending from JBIC
Guarantee from JOGMEC
Project finance

Maintain strong
financial position● Maintain financial strength even at the peak in borrowing
Maintain funding capability to ensure necessary investments● Long–term financial target
Equity ratio : 50% or higher
Net debt/Net total capital employed: 20% or lessApprox.

(¥ billion)

Investment Plan

¥1.8 trillion

788.0

800

From the year ended March 31, 2011
to the year ending March 31, 2017.

630.0

600

Approx. ¥4 trillion

April 2011- March 2014:
400

737.0

366.0
240.7

275.0

200

Development expenditures
Exploration expenditures
Other expenditures*

187.0
54.0
37.0

32.5
21.2

0

2011

2012

36.0
26.0
2013

24.0
27.0

Project Overview
3.1

Reserves, Production and Investment Plan

036

3.2

Project Overview

038

3.3

Special Report 1: Ichthys LNG Project

040

3.4

Special Report 2: Abadi LNG Project

044

3.5

Project Overview by Region

046

Asia & Oceania / Eurasia / Middle East & Africa / Americas / Japan* Mainly for the Naoetsu LNG Receiving Terminal
and domestic pipeline and related facilities

2014

ActualEquity ratio

Net debt /Net total capital employed
Equity ratio

120 (%)Net debt/Net total capital employed
30 (%)

Long-term target:
20% or less

15
90

71.9%
64.0% 64.0%

74.5%

0

68.9%

60

-15

Long-term target:
50% or higher

Corporate Responsibility
and Management(Years to
March 31)

Approx. ¥1.8 trillion

568.0

Crew at ADMA Block, UAE

Business Overview

3

Investment plan and funding sources of approx. ¥4 trillion▲▲

Our company’s objective for corporate
growth is to raise production to 800,000–
1 million boed by 2020. To achieve thisgoal, it is necessary to invest in existing
projects such as the Ichthys and Abadi
Projects, as well as new projects which
will increase our reserves in the future.
In our investment plan,
approximately ¥4 trillion will be requiredfor development and exploration
activities including the Ichthys Project
during the seven-year period from theyear ended March 31, 2011 to the year
ending March 31, 2017.
It is important for us to maintaina strong balance sheet and achieve
ﬁnancial stability in order to makecontinuous investments in potential
projects while also maintaining thefunding capability to ensure necessary
investments for our major LNG projects.
To achieve ﬁnancial stability, we set along-term target for ﬁnancial leverage,that is, an equity ratio of 50% or higher
and a net debt to net total capital
employed ratio of 20% or less.
To implement our ¥4 trillion
investment plan, while considering
the ﬁnancial target, we envisage thefollowing three funding sources:
1) proceeds from a public offering,2) cash and other liquid investments on
hand and3) bank loans including project ﬁnancing.
We completed a public offering inAugust 2010 and succeeded in raising
approximately ¥520 billion. Now weplan to procure funding through bankloans including project ﬁnance taking
into account our ﬁnancial target, ona ﬁnancial base that has been further
strengthened by the public offering.

Project Overview

To ensure further growth, we plan to invest approximately ¥4 trillion over seven years
from the year ended March 31, 2011, to the year ending March 31, 2017. While achieving
ﬁnancial stability, we will make appropriate investments through optimal funding sources.

Performance / Message

Investment Plans and Financial Strategies-18.6%-31.2% -30.6%-30-36.1%-45-48.9%
-60

0

2007

2008

2009

2010

2011

2007

2008

(Years ended March 31)

2009

2010

2011

(Years ended March 31)

Credit rating information (As of June 30, 2011)
Long-term credit ratings
Short-term credit ratings

034

INPEX CORPORATION Annual Report 2011

Standard & Poor’s

A (negative)

Rating and Investment Information

AA- (stable)

Standard & Poor’s

A-1

Financial /Corporate Information30

Reserves, Production and Investment Plan
Reserves

Production Volume

Our reserves as of March 31, 2011, consistedof approximately 1.3 billion barrels ofoil equivalent (boe) of proved reserves,approximately 2.8 billion boe of probablereserves and approximately 600 million boe ofpossible reserves. These proved reserves give
us a reserve to production ratio (R/P ratio) of 8.5
years. Adding the probable reserves increases
the R/P ratio to 26.7 years.
We also have an abundance of contingent
resources. We also expect to continue
increasing proved and probable reserves overthe medium to long term through new projects
and by raising the recoverability rate on
existing oil and gas ﬁelds.

Our net production volume for the year ended
March 31, 2011, was 239 thousand barrels per
day of crude oil and 1,102 million cubic feetper day of natural gas. Combining crude oil andnatural gas gives us production of 423 thousandbarrels of oil equivalent per day (boed).
Regarding medium- to long-term
forecasts for our net production volume, theexisting projects, including Ichthys and Abadi,
will support the production volume of ourassets contributing to a rise in production
to approximately 700 thousand boed.
Furthermore, we expect our production toincrease to 800,000–1 million boed by 2020
through aggressive exploration together withacquisitions of new oil and gas ﬁelds.

Expansion of reserves(Million boe)

■ Japan■ Asia & Oceania■ Eurasia■ Middle East & Africa■ Americas

117
367
210
583
30

(%)

9
28
16
45
2

Reserves are a source ofcorporate value. The probable/possible reserves andcontingent resources will be
upgraded to proved reserves
through development. Throughproduction activities, theseproved reserves will become theearnings source of our company.

Our Reserves(Thousand boed)■ Japan■ Asia & Oceania■ Eurasia■ Middle East & Africa■ Americas■Japan ■Asia & Oceania ■Eurasia ■Middle East & Africa ■Americas
1,000 (Thousand boed)

Major projects:

Ichthys, Kashagan

Ichthys, ACG

Major projects:

Abadi,ADMA Block◀ New

projects

700

3,176
2,929

2,818

Expansion of
production volu
ume

2011

585
2011

Production volume is directly
linked to sales that result inincome for our company. That
income serves as an investment
resource for subsequentdevelopment.

3,000(R/P ratio)

2,000

1,598

1,475

26.7 years

30.5 years

1,308

8.5 years
0

2009

2010

500
400

423

417

440

450

446

435
◀ Existing300

projects

200
100
0

Actual

2012

2013

2014

2015

2016

2020

(Years to March 31)
Notes: The forecasts for net production for the years ending March 31, 2012 to 2016, are premised on the same oil price (Brent crude at $95/ barrel) as that used in forecasting the results for that year.
The production volume of crude oil and natural gas under the production sharing contracts entered into by the INPEX Group corresponds tothe net economic take of our group.

Classiﬁcation of reserves (image)High

Commercial

Production

Proved *1

Probable *2

Contingent resources

Undiscovered
PIIP

Prospective resources

Chance of commerciality

Reserves

Not confirmed /not commercially
viableDiscovered PIIP

600

2011

2011

Years ended March 31

Total petroleum initially-in-place (PIIP)

800,0001 million boedUÊV Ì ÞÃÊ Ê*ÀiVÌUÊL>`Ê Ê*ÀiVÌ]ÊiÌV°

800

5,000

Possible *3

Low
High

Certainty

Low*1 Proved reserves: The amount of oil from known reservoirs for which commercial recovery from a certain date forward is judged
as being possible with reasonable certainty. When probabilistic methods are used, there should be at least a 90% probability
that the quantities actually recovered will meet or exceed the estimated amount of proved reserves.
*2 Probable reserves: Additional reserves which have a lower certainty than proved reserves and a higher possibility of recovery
than possible reserves. When probabilistic methods are used, there should be at least a 50% probability that the quantities
actually recovered will meet or exceed the sum of estimated proved reserves and probable reserves.
*3 Possible reserves: Additional reserves which have a lower certainty than probable reserves. When probabilistic methods areused, there should be at least a 10% probability that the quantities actually recovered will meet or exceed the total sum of
estimated proved reserves, probable reserves and possible reserves.
Note: Prepared by INPEX based on material provided the by Japan Oil, Gas and Metals National Corporation (JOGMEC)

036

Long-term production outlook

900

Project Overview

Major projects:(Million boe)

1,000

6
50
7
32
5

Long-term production outlook■Proved reserves ■Probable reserves ■Possible reserves ■Contingent resources

4,000

(%)

25
214
28
135
21

INPEX CORPORATION Annual Report 2011

Investment Plan
Expan
ansionon of iinvestment for
explorati
ation and development
We continuously invest in
exploration and development tomaintain and expand reserves.

To maintain and expand our reserves, we are
actively conducting exploration investment, as
well as investment in development to produce
crude oil and natural gas from reserves inour possession. We have invested more than¥800 billion during the past three years. Basedon our investment plan of approximately ¥4trillion over seven years period from the year
ended March 31, 2011 to the year ending
March 31, 2017, we will continue to actively
invest in exploration and development. The
investment amount over the next three years
will be approximately ¥1.8 trillion or less. In
particular, we predict increased investment fordevelopment of the Ichthys Project and otherprojects that will contribute to the dramatic
growth of our company.

Investment (Results and plan)■Development expenditures■Exploration expenditures ■Other expenditures*
800 (¥ billion)

788
737

700
630
600

568

500
400
366
275

300
240.7
200

187.0

100
54

0

32.5
21.2

37

36
26

24
27

2011

2012

2013

2014

Actual(Years to March 31)* Mainly for the Naoetsu LNG Receiving Terminal
and domestic pipeline and related facilities

INPEX CORPORATION Annual Report 2011037

Project Overview
We seek to achieve a well-balanced portfolio through a combination of different
projects, by resource (crude oil and natural gas), by stage (exploration, development andproduction), by contract, etc.

Projects

Eurasia
Number of countries
Number of projects
Producing
Development
Exploration
Other

London OfficeAmericas
Number of countries

Countries

Number of projects(As of June 30, 2011)

Producing
Preparation for development

4
5

Exploration

7
18
11
1
6
P. 57

2
1
1
1

Tehran Office

Project Overview

P. 51

Tokyo Head Office

Tripoli Office
Cairo
OfficeHouston OfficeAtlantic Ocean
Abu Dhabi Office

Japan
P. 60

Caracas OfficeParamaribo Office

Pacific Ocean

Jakarta OfficeDarwin Office

Middle East
& Africa
Number of countries
Number of projects
Producing
Undeveloped
Exploration

Perth Office

Indian Ocean

7
13
8
1
4
P. 54

038

INPEX CORPORATION Annual Report 2011

Asia
& Oceania
Number of countries
Number of projects
Producing
Development
Preparation for development
Exploration
Other

Rio de Janeiro Office

7
34
11
2
3
17
1
P. 46

Producing

Exploration, Preparation for development and Development, etc.

INPEX CORPORATION Annual Report 2011039

Ichthysgas-condensate
field

Special Report 1: Ichthys LNG Project

WA-285-P
WA-37-R

INPEX participated in an open bid
conducted by the Australian Federal
Government for the WA- 285-P block,which is located off the coast of Western
Australia about 200 km from the Kimberleyregion. In August 1998 we acquired the
exploration permit for this block. In the ﬁrst
drilling campaign, three exploratory wells
were drilled and discovered the presenceof gas and condensate from March 2000.
We then conducted a 3-D seismic survey.
A second drilling campaign began in
2003, and three exploratory wells were
drilled that resulted in conﬁrmation of theextent of gas and condensate. Further
wells were drilled beginning in 2007.
Through these endeavors, we conﬁrmed
sufﬁcient recoverable reserves of gas andcondensate for commercial development.

The Ichthys LNG Project is the ﬁrst large-scale
LNG project undertaken by a Japanese company
as an operator. The target for FID is Q4 2011,
and the production start target is Q4 2016.

10km

We are currently proceeding withfront-end engineering and design (FEED)
activity, securing government approval,
LNG marketing activities and ﬁnanceactivities, with an FID target of Q4 2011.
After FID, we will begin with detailed
engineering work on both the onshore andoffshore facilities, followed by equipment
procurement and the construction of the
LNG plant and other facilities. The target
date for production startup is Q4 2016.
In August 2006, INPEX was granted
Major Project Facilitation status for the
Ichthys Project by the Federal Minister
for Industry, Tourism and Resources.
This status recognizes the fact that thisproject would contribute to the long-term
economic development of Australia.

Environmental Impact Survey andContribution to Regional Communities
INPEX is working closely with theAustralian Federal and Northern Territory
Governments and other Australian
stakeholders, as well as people associatedwith the project, to ensure that the Ichthys
Project proceeds as planned.

About the Environmental
Impact Survey

One of two large-scale LNG projects in which INPEX iscurrently engaged, Ichthys is an enormous gas and condensate
ﬁeld discovered in 2000 by us about 200 km offshore from
Western Australia. We will build offshore production facilities,
an 889-km subsea gas export pipeline and an onshore LNG
plant, with production targeted for Q4 2016.
Production volume(expected):

LNG 8.4 million tons/year
LPG 1.6 million tons/year
Condensate approx. 100,000 bbl/d (peak rate)

FID target:

Q4 2011

Production start target: Q4 2016

040

Interest owned:

INPEX 76%, TOTAL 24%

Project status:

Preparation for development

INPEX CORPORATION Annual Report 2011

At the offshore rig

INPEX is conducting an environmental
impact survey in accordance with guidelines
established by the Australian Federal
and Northern Territory Governments toassess the impact of aspects of the Ichthys
Project. These included the environmental
impacts of the offshore processing andproduction facilities, the subsea pipeline
and the planned LNG plant (near Darwin
in Australia’s Northern Territory). We
submitted a draft Environmental Impact
Statement (EIS) summarizing these
activities to both governments in April
2010. This report was submitted for public
review during the period July–September
2010, and the opinions of a variety of
stakeholders were taken, focusing on thosein the Darwin area where the LNG plant will
be built. By June 2011, INPEX had been
granted environmental approval for the
Ichthys Project from the ministers of theAustralian Federal and Northern Territory
environmental agencies based on the EIS.

Darwin Ofﬁce

Ichthys LNG Project
AUSTRALIA

Perth Ofﬁce

The name “Ichthys,” which means“ﬁsh” in ancient Greek, is derived
from the many fossilized ﬁsh thatwere discovered in onshore areas inclose proximity to the block.

Project Overview

Ichthys
LNG Project

Project History

Support for Local Communities
In proceeding with the Ichthys Project,
INPEX places great importance oncommunications with local communities
and building a relationship of mutual
understanding with the indigenous
people of the project area. INPEX seeks
to be considered as a trusted corporate
citizen, and therefore we do our utmost
to deepen communications with people
in local communities.
In the case of the Ichthys Project,
our efforts include providing vocational
training opportunities for young people,
such as local indigenous peoples, throughthe donation of approximately AUD2
million for the construction of the Larrakia
Trade Training Centre. The goal of theschool, which opened in April 2011, is toenable students to earn qualiﬁcations
that will help them develop their careers,and currently 300 students are enrolled
to learn professional skills. In addition,
INPEX donated to those affected by the
Queensland ﬂoods.

Environmental Assessment Report
Please refer details on : http://www.inpex.com.au/

Larrakia Trade Training Centre

Students and INPEX Chairman Kuroda at the Larrakia
Trade Training Centre

INPEX CORPORATION Annual Report 2011041

Special Report 1: Ichthys LNG Project
Project Development Concept
Onshore Facilities

Offshore Production Facilities
FPSO

These are composed of a central processing facility(CPF) for the separation of natural gas and condensate
and a ﬂoating production storage and ofﬂoading (FPSO)
vessel for the storage and ofﬂoading of condensate.

The FPSO receives condensate from the
CPF and handles storage (storage capacity
1.2 million barrels) and shipments (85,000
bbl/d peak). Some of the natural gas is repressurized and sent back to the CPF.

■Condensate: 85 thousand bbl/d (peak rate)

These are composed of the LNG plant andonshore storage facilities. The planned site forthese facilities is Blaydin Point, which is acrossthe harbour from Darwin.
■LNG: 8.4 million tons/year■LPG: 1.6 million tons/year■Condensate: 15 thousand bbl/d (peak rate)

Outline of Development Concept
LNG: 8.4 million tons/year
Production volume:

Condensate: 100 thousand bbl/d (peak rate)
LPG: 1.6 million tons/year

Subsea development wells:

30 wells at Brewster, 20 wells at Plover

Reservoir depth:

Approx. 3,900 m - 4,600 m

Subsea production facility:

Flowline, ﬂexible riser, etc.

Offshore production facility: CPF + FPSO
Gas export pipeline:

42” subsea pipeline (approx. 889 km)

Darwin onshore facilities:

Produce, store and ship LNG, LPG andcondensate

CPF
Processes the product received via the
ﬂexible risers from the development wells,
separating it into gas and condensate.

Onshore storage tankcapacity:
Natural gas

C3 Tank: 1 × 85,000 m³

C4 Tank: 1 × 60,000 m³

100km

200km

Gas Liquefaction Plant
The gas liquefaction plant will extract
condensate and LPG from the natural
gas pumped via the pipeline. Using
two trains, the liquefaction plant willthen cool the remaining natural gas
to –162°C to form LNG. It will handle
shipments of approximately 8.4 million
tons/year of LNG, 1.6 million tons/yearof LPG and 15,000 bpd of condensate.

These are pipes for transporting
product from the seabed to the CPF.

Product

Ichthys
WA-37-R / WA-285-P

approx. 889km

Darwin City

Timor Sea

Ichthys gas-condensate ﬁeld location

Development
Well

Project Overview

Natural gas

Product

Condensate

Water depth:
approx. 250m

: 2 × 165,000 m³

Condensate Tank : 2 × 60,000 m³(re-pressurized and sent back to the CPF)

Flexible Risers

LNG Tank

Northern Territory• Browse Sedimentary Basin of theWestern Australia continental shelf• Approximately 200 km offshore Western
Australia

Flowline

Gas Export Pipeline

City of Darwin

Block area

(INPEX Darwin Office)2

Drill Center
This equipment is placed on the seabedfor direct connection to a number ofdevelopment wells.

• WA-37-R: 913 km• WA-285-P: 1,161 km2This is a 42” wide pipeline connecting
the CPF with the onshore LNG plant. The
pipeline route takes it as deep as 250 m,
and to a length of approximately 889 km.

Wickham Point（Darwin LNG）

Water depth

Timor Sea

• Block water depth: 170 m–340 m• Offshore production facility depth:
approx. 250 m(Planned construction site)

Blaydin Point
Middle Arm Peninsula

Project History
1998
Participated in an open
bid, permit acquired▶ Submitted a bid for WA285-P in an open bid process
conducted by the AustralianFederal Government; a permit
was acquired042

2000 – 2001

2003– 2004

2007– 2008

First drilling campaign

Second drilling campaign▶ Conﬁrmed the presence of gas
and condensate in all three
exploratory wells▶ Drilled three exploratory wells
to verify reserves; conﬁrmed theareal extension of the reservoir
and the presence of gas andcondensate

Appraisal of recoverable
reserves▶ Acquired, processed andinterpreted 3-D seismic data

INPEX CORPORATION Annual Report 2011

▶ Conﬁrmed the extension of theIchthys gas-condensate poolthrough further drilling of two
wells

2009-2011

Future Milestone

Preparation for development

Government approvals▶ Started FEED
activities forthe onshore
LNG plant,
the offshore
production
facilities and thepipeline in 2009

▶ Public review of EIS during the period
July–September 2010

▶ Invitation to tender (ITT) for the CPF issued in
November 2010
▶ Preparatory work for the EPC procurement phaseof the onshore LNG plant began in December
2010▶ Engineering work for the LNG plant completed in
March 2011 / Preparatory work underway / Major
engineering work in process at off-shore facilities▶ Field development
plan andproduction license▶ EIS supplement taking public review into
applicationconsideration submitted to government in April 2011
submitted to the▶ Environmental approval received from thegovernment ingovernment of the Northern Territories in May 2011
April 2011
and from the Australian Federal Government in June2011

▶ Q4 2011: Final
investment
decision (FID)▶ Q4 2016:
Production start

INPEX CORPORATION Annual Report 2011043

Special Report 2: Abadi LNG Project

Masela Block

Abadi production test

Abadi gas fieldAbadi
LNG Project

Development of the Abadi Gas Field
Production of the Abadi Project

LNG project employing
the world's ﬁrst ﬂoating LNG technology
Full-scale progress through a strategic partnership

Planned production at Abadi is 2.5 million
tons/year of LNG and 8,400 bbl/d ofcondensate.
This scale of production wasapproved for Phase 1 development by
the Indonesian Government in December
2010. Phase 1 development is planned
for the Northern area of the block where
reserves are concentrated. A feasibility
study for further development is
continuously being conducted based ongas reserves.

Floating LNG Technology
The Abadi gas ﬁeld is located in the Arafura Sea in Indonesian
territorial waters, approximately 2,600 km east of Jakarta, thecapital of Indonesia. The ﬁeld is classiﬁed as a giant gas ﬁeld
with an area of more than 1,000 km2. Development basedon the “ﬂoating LNG” concept is being studied, and we are
currently preparing for Front-End Engineering and Design(FEED) and related preparatory development work.

30km

ofﬂoaded) concept. A ﬂoating LNG is
created by installing an LNG plant ona large vessel. This new method allows
for natural gas to be processed into
liquid at that plant and then directlyofﬂoaded to an LNG carrier. A numberof oil companies, notably the oil majors,
are looking into commercial use of such
FLNGs or are preparing to constructthem.
A ﬂoating LNG eliminates the needfor some conventional equipment, suchas pipelines, and therefore requires
less initial investment and minimizes
environmental impact.

Jakarta Ofﬁce

Abadi
LNG Project

INDONESIA

The plan of development for the Abadi
Project is based on the “ﬂoating LNG”
(a ﬂoating offshore facility where natural
gas is processed, liqueﬁed, stored andProject Overview“Abadi” means “eternal” in Bahasa
Indonesia. The name was assignedin the hopes of “burning forever.”Floating LNG at Abadi

Production volume LNG 2.5 million tons/year (First phase development)(expected):
Condensate approx. 8,400 bbl/dInterest owned*:

INPEX 60% Shell 30% PT Energi Mega Persada 10%

Project status:

Preparation for development

LNG Tanker*In July 2011, INPEX signed an agreement with Shell for transfer of a 30% participating interest. The transaction
is subject to the satisfaction of certain conditions such as the approval of the Indonesian Government.

Image of Abadi FLNG

Project History
INPEX acquired a 100% participatinginterest in the Masela block in November
1998 through a public tender conductedby the Indonesian Government. INPEX
proceeded with the exploratory activity
as the operator, and an exploratory welldrilled in 2000 discovered the Abadi gas
ﬁeld. This marked the ﬁrst discovery ofoil and natural gas in the Arafura Sea,
Indonesia. Subsequently, six appraisal
wells were drilled (two in 2002 and four
more in 2007-2008) so as to gain a moreaccurate estimate of the reserves. All of
the wells conﬁrmed the presence of a
sufﬁcient gas and condensate column.
In parallel with these activities,
concept selection studies of development
options were carried out. We submitted
a plan of development (POD) basedon our studies in September 2008,
and subsequently received approvalin principle for it from the Indonesian
Government. Afterward, taking into

044

INPEX CORPORATION Annual Report 2011

Structure of the Abadi gas field

Contribution to Regional Community
consideration a third-party evaluationof the POD implemented by theGovernment, it was determined thatphased development of the Abadi gas
ﬁeld would be appropriate, with the ﬁrst
phase consisting of development as a“ﬂoating LNG” with a capacity of 2.5
million tons/year of LNG. The Indonesian
Government granted its approval tothe plan of development (POD-1) inDecember 2010. INPEX is currently
conducting preparations for FEEDand Environmental and Social Impact
Assessment (AMDAL) procedures, and weare continuing to make preparations fordevelopment.
In the course of moving toward fullscale development, we had been looking
into forming a strategic partnership witha company with experience and provenresults in the LNG business and largescale offshore development, which could
contribute to the success of this project.

As a result, INPEX chose to invite RoyalDutch Shell onboard as our strategic
partner in the Abadi Project, and signed
an agreement with the subsidiary of
Shell to transfer part of our participatinginterest (30%) in July 2011.

Project History

As part of our efforts to contribute to
local communities, INPEX donated 2,000
books, etc., to a local library in Saumlaki
city in Maluku, one of the candidate
locations for the Abadi Project logistics
base, in 2010, at the local community's
request. From April 2011, INPEX andPattimura University are carrying out anempowerment program for the seaweed
farmers in Selaru Island in Maluku.

Our other activities in Indonesia
include donations to relief efforts after theWest Sumatra Earthquake and our ongoingsupport of exchange students through the
INPEX Scholarship Foundation. In addition,
we work to improve the understanding of
the contributions of the Abadi Project toIndonesia by participating in conferencesand exhibitions throughout the country.

Donation to local library in Saumlaki City

1997– 2000

2001– 2002

2003– 2007

2007– 20082010

Future Milestone

Participated in an open bid,permit acquired

Drilled appraisal
wells

Reserves conﬁrmation

Studies of ﬂoating LNG▶ Submitted a bid for the Masela block at a
public tender conducted by the Indonesian
Government; A production-sharing contract(PSC) for the block was concluded▶ Drilled the Abadi-2
and Abadi-3 appraisal
wells over a period of
about seven months
beginning in March
2002 to appraise theextent of the structure▶ Conducted a reserves evaluationand concept selection studies ofdevelopment options▶ Conducted pre-FEED work
for a ﬂoating LNG

Government approvalof the POD-1▶ FEED▶ AMDAL(Environmental
and Social Impact
Assessment)▶ Conducted a seismic survey; Conﬁrmed thepresence of gas and condensate by drillingan exploratory well

▶ Drilled four additional appraisal
wells from May 2007. Conﬁrmed
the extension of gas andcondensate pools▶ Submitted a POD to theIndonesian Government in
September 2008

▶ Transfer of a 10%
participating interest to
PT Energi Mega Persada▶ Approval of POD-1
was granted by theIndonesian Government▶ FID▶ Production start

INPEX CORPORATION Annual Report 2011045

Project Overview by Region

Asia & Oceania
Net sales increased 15.5% to ¥406.9 billion, and operating income increased 23.4% to ¥235.8 billion, due
to increases in sales prices of crude oil and gas, and a rise in the sales volume of crude oil, despite yen
appreciation.

Net production by region

Proved reserves by region

50%

44%

28%

214

¥406.9367

thousand boedbillion7
Number of projects 34
Number of countries

million boe

P.

Attaka Unit

Preparation for development

3

Exploration

17

Other

1

1 Offshore Mahakam Block

Tengah BlockSouth East Mahakam Block47

Semai II Block

Sebuku Block

WA-410-P
WA-411-P
WA-281-P
WA-274-P

8 JPDA03-12 – Bayu-Undan Project
Darwin Office
WA-343-P OP
WA-341-P OP
WA-344-P OP

5 WA-285-P / WA-37-R (Ichthys) OP
P.

WA-155-P (Part II)
WA-35-L
WA-155-P (Part I)

P. 48
WA-43-L (Ravensworth Oil Field) and others

3 WA-35-L (Van Gogh Oil Field),

AUSTRALIA

Perth Office

OP Operator project
Exploration

Preparation for development

INPEX CORPORATION Annual Report 2011

Crude oil: 91 thousand bbl/dNatural gas: 2,026 million cf/d

INPEX entered into a production sharing
contract (PSC) with the Indonesian
Government in October 1966, at that timeacquiring a 100% working interest in the
Offshore Mahakam Block. The Attaka Unit
was established in April 1970 throughthe unitization of part of the adjacent
blocks owned by INPEX and Unocal (nowChevron), with each company taking
a 50% interest. The Attaka ﬁeld was
subsequently discovered, and productionof crude oil and natural gas began in
1972. INPEX farmed out a 50% working
interest in the Offshore Mahakam Blockto CFP (now TOTAL) in July 1970. Thisventure subsequently made a series of
discoveries in the Bekapai (oil), Handil (oil),
Tambora (oil and gas), Tunu (gas), Peciko(gas), Sisi and Nubi (gas) ﬁelds, all of

INPEX CORPORATION(February 21, 1966)

INPEX 50% TOTAL* 50%
INPEX 50% Chevron* 50%

which have continued to produce crude
oil and natural gas. The crude oil andcondensate produced from these ﬁelds
are shipped mainly to oil reﬁneries andpower companies in Japan by tanker fromthe Santan and Senipah terminals. Mostof the natural gas is supplied to Bontang,
one of the largest liquefaction plants inthe world before being shipped as LNG
to Japan and elsewhere.
An extension through the endof 2017 for each of these two blocks
underpins the overall Mahakam block’s
role as a key proﬁt center for INPEX. In
addition, negotiations are under way
with the Indonesian authorities to securea contract extension beyond 2018 withrespect to the Offshore Mahakam Block.

Development

2. South Natuna Sea Block B
Contract area (block)

Project status

Venture company(production on the basis of all ﬁelds and average rate of FY2010)(established)

South Natuna Sea B

Producing

PPL19050 7 JPDA06-105 (Kitan Oil Field)

WA-357-P
Coniston Unit
WA-255-P Block 1081
WA-35-L (Van Gogh Oil Field)
WA-43-L (Ravensworth Oil Field)

046

PDL3 & PDL4
Unitization

49 P. 44 Special Report 6 Masela Block (Abadi) OP
P.

48

PAPUA
NEW GUINEAINDONESIA

Jakarta OfficeP.

P.

Producing

Interest owned (*operator)

East Kalimantan Block

Attaka UnitP.

(established)

Offshore Mahakam

4 Berau Block – Tangguh LNG Project

Block SK-10
Block SK-8

Block B

47

Venture company(production on the basis of all ﬁelds and average rate of FY2010)

2

Blocks 05-1b & 05-1c

M A L AY S I A

Project status(block)11

VIETNAM

2 South Natuna Sea

Contract area

Development

Offshore Martaban

Mahakam Delta

1. Offshore Mahakam Block and Attaka Unit

Producing

M YA N M A R

Geological survey (in Indonesia)

Project Overview

Net sales by region

Mahakam, Indonesia

ProducingOther

49 P. 40 Special Report

P.

50

Crude oil: 56 thousand bbl/dNatural gas: 376 million cf/d
LPG: 12 thousand bbl/d

In July 1977, INPEX acquired a 17.5%
working interest in the South Natuna Sea
Block B. Later, in January 1994, INPEX
increased its total working interest in theblock to 35% with the purchase of anadditional 17.5% interest. The following
ﬁelds were subsequently discovered
within the block: Belanak (oil and gas),
Hiu (gas), North Belut (gas), Belida (oil),
Sembilang (oil) and Kerisi (oil and gas).
Crude oil production has continued
since 1979. A sales agreement to deliver
natural gas to Singapore via Indonesia’s
ﬁrst international pipeline was concludedin January 1999. The pipeline started
supplying gas from the block, as well

INPEX Natuna, Ltd.
(September 1, 1978)

Interest owned (*operator)

INPEX Natuna 35%
ConocoPhillips* 40% Chevron 25%

as the two adjacent blocks of NatunaSea Block A and Kakap Block, in 2001.
Additional deliveries of natural gas fromthis pipeline to Malaysia started in 2002.
These supply milestones have contributed
to the extension of the PSC covering theblock until 2028.
Production operations in the
Belanak ﬁeld utilize a world-class FPSO
system. Production of crude oil andcondensate began in December 2004
and of LPG in April 2007. The Hiu andKerisi ﬁelds came on stream in 2006
and 2007, respectively. Gas productioncommenced at the North Belut ﬁeld in
November 2009.

INPEX CORPORATION Annual Report 2011047

3. WA-35-L (Van Gogh Oil Field), WA-43-L (Ravensworth Oil Field) and others
Contract area (block)

Project status (production on the basis of
all ﬁelds and average rate of FY2010)

WA-35-L(Van Gogh oil ﬁeld)

Producing(Crude oil: 30 thousand bbl/d)

WA-43-L(Ravensworth oil ﬁeld)
Coniston Unit
(WA-35-L, WA-255-P unitization area)

Venture company

Interest owned(established)(*operator)

Contract area (block)

Project status

INPEX Alpha 47.499% Apache* 52.501%

WA-37-R

Preparation fordevelopment

Producing(Crude oil: 16 thousand bbl/d)

INPEX Alpha 28.5% BHPBP* 39.999%
Apache 31.501%

WA-285-P

Preparation for development
INPEX Alpha, Ltd.
(February 17, 1989)

WA-255-P Block 1081
WA-35-L(excluding Van Gogh oil ﬁeld)

Venture company

Interest owned(established)(*operator)

INPEX Ichthys Pty Ltd(April 5, 2011)

INPEX Ichthys Pty Ltd* 76% TOTAL 24%
INPEX Browse* 76% TOTAL 24%

WA-274-P

INPEX Browse 20% Chevron 50% Santos* 30%

INPEX Alpha 41.32913%
Apache* 45.67587% Woodside 13.0000%

WA-281-P

INPEX Browse 20.0000% Santos* 47.8306%
Chevron 24.8300% Beach 7.3394%

INPEX Alpha 23.7495% Apache* 26.2505%
Woodside 50.0000%

WA-341-P

INPEX Alpha 47.499% Apache* 52.501%

Exploration

WA-357-P

p. 40 Special Report

5. WA-37-R (Ichthys) and its Surrounding Blocks

INPEX Browse, Ltd.
(September 1, 1998)

Exploration

WA-343-P

INPEX Browse* 60% TOTAL 40%

WA-344-P

INPEX Alpha 35% Apache* 65%

WA-410-P

INPEX Browse 20% Santos* 30% Chevron 50%

WA-155-P (PartⅡ)

INPEX Alpha 18.67% Apache* 81.33%

WA-411-P

INPEX Browse 26.6064% Santos* 63.6299% Beach 9.7637%

WA-155-P (PartⅠ)

INPEX Alpha 28.5% BHPBP* 39.999%
Apache 31.50%(Part I). Production licenses were thenobtained for WA-35-L and WA-43-L, andoil production commenced in Februaryand August 2010, respectively.
Preparation for development
work is also under way at the Coniston/Novara, which spans WA-35-L and WA255-P.

on offshore production facilities atthat time. The EPC tender for the CPF
was issued in November 2010, withpreparatory work for the procurement
phase of the LNG plant beginning in
December of the same year. In addition,
work concerning production licenses
and ﬁnancing is ongoing with the target
for FID scheduled in Q4 2011, and forcommercial production in Q4 2016.
INPEX also retains interests in eightblocks surrounding Ichthys. Exploration
activities are ongoing. Any discoveries ofmajor oil or gas reserves in these blocks
could considerably increase the potentialof the Ichthys ﬁeld beneﬁtting fromsynergistic effects.

Project Overview

INPEX has acquired working interests inoffshore Western Australia, such as WA155-P (Part II) and WA-12-L (deep) in July
1994, WA-155--P (Part I) in July 1999,
WA-357-P in July 2006, and one block in
WA-255-P in March 2009.
The Van Gogh and Ravensworth
oil ﬁelds were discovered in WA-155-P

INPEX acquired a working interest in
WA-285-P offshore Western Australia
after winning an open bid in August
1998. In 2000, after pursuing exploration
activities as an operator, INPEX
discovered the Ichthys gas-condensate
ﬁeld.
Eight exploratory wells drilled
by INPEX conﬁrmed the presence of
sufﬁcient reserves for a large-scale
project in the Ichthys gas-condensate
ﬁeld. Later, in September 2008, a site in
Darwin was selected for construction of
an LNG plant. FEED work on this plantbegan in January 2009. In April of thesame year, an ofﬁce was established in
Darwin and FEED work also commenced

4. Berau Block, Tangguh LNG ProjectContract area
(block)Berau

Tangguh Unit

Project status (production on the basis of
all ﬁelds and average rate of FY2010)

Producing
Crude oil: 5 thousand bbl/dNatural gas: 799 million cf/d

MI Berau B.V., a joint venture establishedby INPEX (44%) and Mitsubishi
Corporation (56%), acquired an interestof around 22.9% in the Berau Block, a
hub within the Tangguh LNG Project, in
October 2001. MI Berau owns a 16.3%
working interest (including an actualinterest held by INPEX of about 7.17%)in the Tangguh Unit, which is a unitizedarea spanning the Berau Block and the
adjoining Wiriagar and Muturi blocks. MI
Berau Japan Ltd., a second joint venture
between INPEX (44%) and Mitsubishi
Corporation (56%), also acquired 16.5%of the issued and outstanding shares

048

INPEX CORPORATION Annual Report 2011

Venture company

Interest owned(established)(*operator)

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

Ml Berau 22.856% BP* 48.0%
Nippon Oil Exploration (Berau) 17.144% KG Breau 12.0%
MI Berau 16.3% BP* 37.16% CNOOC 13.9%
Nippon Oil Exploration (Berau) 12.23%
KG Berau, KG Wiriagar 10.0% LNG Japan 7.35% Talisman 3.06%

of KG Berau Petroleum Ltd. in October
2007, bringing INPEX’s total interest in
the project to 7.79%.
In March 2005, the Indonesian
Government approved a development
plan for the Tangguh LNG Project andan extension of the PSC until 2035.
Subsequently, development work
such as the drilling of production wells
and construction of an LNG plant was
conducted over a period of four years.
The ﬁrst cargo of LNG was shipped inJuly 2009.

p. 44 Special Report

6. Masela Block (Abadi)
Contract area
(block)MaselaProject status

Preparation fordevelopment

Venture company(established)

INPEX Masela, Ltd.
(December 2, 1998)

INPEX acquired a 100% participatinginterest in the Masela Block in November
1998 through a public tender conductedby the Indonesian Government. The
Abadi-1 exploratory well was drilled in2000 and conﬁrmed the presence of gas
and condensate. This marked the ﬁrst
discovery of crude oil and natural gas in
the Arafura Sea, Indonesia. Subsequently
six appraisal wells were drilled by 2008
(two in 2002 and four more in 20072008), and gas and condensate weresuccessfully conﬁrmed in all of thewells. In September 2008, based on theInterest owned (*operator)**

INPEX Masela* 60% Shell 30% PT Energi Mega Persada 10%*In July 2011, INPEX signed an agreement with Shell for transfer of a 30% participating interest. The
transaction is subject to the satisfaction of certain conditions such as the approval of the Indonesian
Government.

results of Pre-FEED of a ﬂoating LNG, adevelopment plan was submitted to theIndonesian Government and approvalin principle was granted. After a thirdparty evaluation, approval for the planof development (POD-1) was granted in
December 2010 for commencement of
LNG production of 2.5 million tons/year.
Currently, various preparatory measures,
including Front-End Engineering and
Design (FEED) and Environmental andSocial Impact Assessment (AMDAL), areunderway in the lead-up to developmentof the Abadi gas ﬁeld.

INPEX CORPORATION Annual Report 2011049

Eurasia
Ichthys LNG Project, Australia

Blaydin Point in Northern Territory, Australia

JPDA (Kitan Oil Field)

7. JPDA06-105 (Kitan Oil Field)

Net sales decreased 7.1% to ¥68.3 billion, and operating income fell 8.3% to ¥36.4 billion, due to adecrease in the sales volume of crude oil and yen appreciation, despite an increase in the sales price of
crude oil.

Net sales by region

Net production by region

Proved reserves by region

Number of projects

45

Producing2

Development

1

Exploration

1

Other

1

Number of countries

JPDA06-105

Project status

Venture company (established)

Interest owned (*operator)

Development

INPEX Timor Sea, Ltd.
(November 25, 1991)

INPEX Timor Sea 35% Eni* 40%
Talisman 25%

7%

7%

16%

billionthousand boed

million boe

28

¥68.3
INPEX acquired an interest in JPDA06105 in January 1992, a contract area
located within the Timor Sea Joint
Petroleum Development Area (JPDA). Oilin the Jahal structure and the Kuda Tasi
structure was discovered in 1996 and2001, respectively, through exploration
works.
Oil was found in March 2008by the Kitan-1 exploratory well,and the presence of a commercial
oil accumulation was conﬁrmed by

the Kitan-2 appraisal well drilled
subsequently. In line with the provisionsof the PSC, INPEX made a declaration in
April 2008 to the authorities that an oil
ﬁeld of commercial scale had been foundat Kitan. Thereafter, INPEX acquired
approval for the ﬁnal development planfrom the relevant authority in April 2010.
Currently, development work is under
way at the Kitan Oil Field with a target
production startup in the second half of
2011.

210

P799
Sakhalin Project

RUSSIA

UNITED
KINGDOMRUSSIA

London Office

8. JPDA03-12 – Bayu-Undan ProjectContract area
(block)

JPDA03-12
Bayu-Undan
Unit

Project status (production on the basis of
all ﬁelds and average rate of FY2010)

Producing
Crude oil: 54 thousand bbl/d
LPG: 32 thousand bbl/dNatural gas: 502 million cf/d

In April 1993, INPEX acquired a working
interest in JPDA03-12, a contract
area located in the Timor Sea JPDA.
Exploration within this contract area
resulted in the discovery of oil and gas in
the Elang, Kakatua, Kakatua North andUndan structures.
Oil production in the Elang,
Kakatua and Kakatua North oil ﬁelds
began in 1998 but ceased in 2007 due
to natural depletion. Geological studies
revealed that the Undan structure andthe Bayu structure in the adjacent
JPDA03-13 contract area were a single
body. Final agreement on unitization
was reached in 1999 between interest

FRANCE

Venture company

Interest owned(established)(*operator)

INPEX Sahul, Ltd.
(March 30, 1993)

CZECH
R E P.

INPEX Sahul 11.378120% ConocoPhillips* 56.943372%
Eni 10.985973% Santos 11.494535%
Tokyo Timor Sea Resources (TEPCO/Tokyo Gas) 9.198000%

holders of both contract areas, allowing
joint development of the BayuUndan gas and condensate ﬁeld toproceed. The commercial production ofcondensate and LPG from the projectcommenced in 2004. An LNG sales
agreement was concluded with Tokyo
Electric Power Co., Inc., and Tokyo Gas
Co., Ltd., in August 2005 stipulating a
total annual supply of 3 million tons.
The gas is transported through a 500km undersea pipeline to an LNG plantbuilt in Darwin in Australia’s Northern
Territory. LNG shipments from the plantcommenced in February 2006.

INPEX CORPORATION Annual Report 2011UKRAINEK A Z AK HS TAN

AUSTRIAHUNGARY

ROMANIAP.

52 1 Offshore North

Caspian Sea Contract Area
(Kashagan Oil Field and others)

I TA LY

BULGARIAGREECEP.

Exploration

050

JAPAN

BELARUSPOLANDGERMANYINPEX Sahul 19.2458049% ConocoPhillips* 61.3114766%
Santos 19.4427185%

Project Overview

Contract area (block)

Development

TURKEYUZBEKISTANGEORGIAAZERBAIJAN

2 ACG Oil Fields
TURKMENISTAN

P.

53

53 3 BTC Pipeline

Producing

INPEX CORPORATION Annual Report 2011051

Kashagan Oil Field (site crew)

Kashagan Oil Field (offshore facility)

1. Offshore North Caspian Sea Contract Area (Kashagan Oil Field and others)
Contract area (block)

Offshore North Caspian Sea

Project status

Development

The Offshore North Caspian Sea
Contract Area consists of two blocks,
the eastern block (4,300 km²) and thewestern block (around 1,275 km²), witha combined total area of around 5,575
km². Of these, the Kashagan Oil Fieldlies in the eastern block, approximately
75 km southeast of the Kazakhstan cityof Atyrau, at 3–5 meters deep in the
Caspian Sea.
In September 1998, INPEX
acquired a working interest in the
Offshore North Caspian Sea Contract
Area inside Kazakhstan’s territorial
waters. Today, INPEX holds a 7.56%
interest.
The Kashagan Oil Field was
discovered during the ﬁrst exploratory
drillings in the block in September 1999.
The ﬁrst discovery in the Kazakhstancontrolled part of the Caspian Sea, theKashagan ﬁeld is among the largest ﬁnds
in the history of oil exploration.
A phased development of thisﬁeld is planned, with the Phase 1
experimental program now under way.
The co-ventures agreed in October
2008 with the Kazakhstan authority todevelop the Kashagan ﬁeld, upon which
the co-ventures established a new joint
operating company, North CaspianOperating Company, which assumed therole of the former operator, Agip KCO,
in January 2009. The production startis targeted for the end of 2012, with
development under way currently.

052

INPEX CORPORATION Annual Report 2011

Venture company (established)

Interest owned

INPEX North Caspian Sea, Ltd.
(August 6, 1998)

INPEX North Caspian Sea 7.56% Eni 16.81%
ExxonMobil 16.81% KMG 16.81% Shell 16.81%
TOTAL 16.81% ConocoPhillips 8.40%

Besides the Kashagan ﬁeld,
hydrocarbon reserves have also been
conﬁrmed in the four other structuresof Kalamkas, Kashagan Southwest,
Aktote and Kairan. Appraisal of thesestructures is continuing in parallel withthe development of the main Kashaganﬁeld with a view to expanding the total
production of the Contract Area.
Development of the Kashaganﬁeld is subject to strict environmental
conditions. The international consortiumof developers represents the highest
level of technology and know-how,
and work is being carried out withclose consideration of the surrounding
environment, and it is hoped that thedevelopment will lead to increased oil
export revenues for Kazakhstan, thecreation of employment opportunities inthat country and the improvement of theeconomic situation for its people.

BTC Pipeline (Ceyhan Terminal)

ACG Oil Field

2. ACG Oil Fields
Contract area (block)

Project status (production on the basis of
all ﬁelds and average rate of FY2010)

ACG(Azeri, Chirag, Gunashli)

Producing(Crude oil: 821 thousand bbl/d)

INPEX acquired a 10% working interestin the Azeri-Chirag-Gunashli (ACG)
oil ﬁelds in April 2003. The ﬁelds
are located in a region of the South
Caspian Sea controlled by the Republicof Azerbaijan. In August 2010, INPEX
purchased an additional interest(0.9644%) that increased its working
interest to 10.9644%.
Oil production started in the Chiragﬁeld and has since expanded to include
the Central Azeri ﬁeld (February 2005),
the West Azeri ﬁeld (December 2005)
and the East Azeri ﬁeld (October 2006).
The Deep Water Gunashli ﬁeld came onstream in April 2008. The New Chirag

Venture company

Interest owned(established)(*operator)

INPEX Southwest
Caspian Sea, Ltd.
(January 29, 1999)

INPEX Southwest Caspian Sea 10.96%
BP* 37.43% Chevron 11.27% SOCAR 10.00%
Statoil 8.56% ExxonMobil 8.00% TPAO 6.75%
Itochu 4.30% Hess 2.72%

Oil Project (COP) was sanctioned in
March 2010. The COP is the additional
investment for the development of
Chirag and the deep-water portion,
including the shallow layer, of the
Gunashli ﬁelds. Operations are under
way so as to increase oil output from theACG ﬁelds.
Most of the crude oil producedby the ACG ﬁelds is being transported
from Baku, Azerbaijan, to Ceyhan,
Turkey via Georgia for shipment from
the Mediterranean coast using the BTC
pipeline, a major oil transportation
system that began full-scale operations
in June 2006.

Project Overview

Kashagan Oil Field(onshore production facility)

3. BTC Pipeline
Contract area (block)

Venture company (established)

Interest owned (*operator)

BTC Pipeline

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

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

INPEX acquired a 2.5% interest in the
BTC pipeline project in October 2002.
The 1,770-km BTC pipeline
stretches from the Baku, Azerbaijan to
Ceyhan on Turkey’s Mediterranean coast
through Tbilisi, Georgia. Commencing
full-scale operation in June 2006, thepipeline was originally built to transport
crude oil produced in the ACG oil ﬁelds
in Azerbaijan. The pipeline’s capacity
was expanded up to 1.2 million bbl/d sothat it can also accommodate future oil
output from the Kashagan Oil Field in
Kazakhstan.

INPEX CORPORATION Annual Report 2011053

Middle East & Africa
Net sales increased 15.4% to ¥350.7 billion, and operating income rose 18.3% to ¥243.1 billion, due to anincrease in sales volume and the sales price of crude oil, despite yen appreciation.
ADMA Block, Zirku Island, UAE

Net production by region

32%

45%

billionthousand boed

million boe

135¥350.7

1. ADMA Block

Proved reserves by region

37%

Number of countries

7

Number of projects

13

Producing

8

Preparation for development

1

Exploration

4

Contract area (block)

Upper Zakum Field

583

TURKEYSYRIA

3 El Ouar I and II Blocks

MOROCCOP.

JORDAN

Cairo OfficeSouth October Area

Block 113-3&4 OP

ALGERIAP.

55 ADMA Block 1

SAUDI
ARABIAMALI

Soroosh &Nowrooz Fields

West Bakr Area OP
Abu Al Bukhoosh BlockEGYPT

L I B YA

IRAN

IRAQ

Tripoli Office

Ohanet Block

Tehran Office

56

NIGER

U.A
U
A .E
E

YEMEN

CHAD

SUDAN
SOMALIA

NIGERIACAMEROONCENTRAL
AFRICANREPUBLICETHIOPIADEMOCR ATICREPUBLIC
OF CONGO

Onshore Cabinda North Block

Nganzi Block3/05 A BlockK E N YA

Abu Dhabi
Office

OMAN

Venture company (established)

Interest owned

JODCO 12% ADNOC 60%
BP 14.67% TOTAL 13.33%
JODCO 12% ADNOC 60% ExxonMobil 28%

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

Umm Al-Dalkh Field
Satah Field

Umm lulu Field

GREECE

Project status

Umm Shaif,
Lower Zakum Field

Nasr Field

SPAIN

Tea ceremony in Abu Dhabi

Preparation fordevelopment

In May 2004, INPEX made Japan Oil
Development Co., Ltd. (JODCO), a
wholly owned subsidiary by acquiring
all of the JODCO shares held by Japan
National Oil Corporation through a shareexchange. Established in 1973, JODCO
owns an interest in the ADMA Blocklocated offshore Abu Dhabi in the United
Arab Emirates. Oil production currently
spans ﬁve ﬁelds in the block. Production
started from the Upper Zakum (UZ) Oil
Field (the largest in the block) in 1982,
followed by the Umm Al-Dalkh (UA) Oil
Field in 1985 and the Satah (ST) Oil Field
in 1987. JODCO has been involved in
the development of these ﬁelds. The
Umm Shaif (US) and the Lower Zakum(LZ) oil ﬁelds have also been producing
crude oil steadily since 1962 and 1967,
respectively. The oil produced fromthese ﬁelds is transported by subsea
pipelines to the islands of Das (from US
and LZ) and Zirku (from UZ, UA and ST)
for shipment.

JODCO 12% ADNOC 88%
JODCO 40% ADNOC 60%
JODCO 12% ADNOC 60%
BP 14.67% TOTAL 13.33%

A number of development projects
are currently under way to maintain andexpand oil output from the ADMA Block,including plans to develop promising
untapped structures in the block,the construction of new gas injection
facilities for the Umm Shaif ﬁeld andredevelopment plans for the Upper
Zakum ﬁeld that involve the use ofartiﬁcial islands.
The operation and developmentof these ﬁelds is undertaken by ADMAOPCO and ZADCO, the two local
operating companies for which theshares are owned by JODCO, Abu
Dhabi National Oil Company (ADNOC)
and other participating oil companies.
Through JODCO, INPEX continues todispatch engineers and other personnel
to both of these operating companies.

Project Overview

Net sales by region

ADMA Block, Upper Zakum Field

TANZ ANIA

3/91 Block

2 Offshore D.R.

Congo Block

P.

054

Producing

MOZAMBIQUEZAMBIANAMIBIAOP Operator project
Exploration

ANGOLA

56

ZIMBABWE

MADAGASCAR

Undeveloped

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011055

Americas
Offshore Congo Block

Offshore Congo Block

Offshore Congo Block

Net sales decreased 24.1% to ¥12.7 billion, due to a decrease in the sales volume of crude oil, and theoperating loss was ¥3.0 billion (compared with operating income of ¥1.0 billion in the previous year), due tohigher exploration expenses.

2. Offshore D.R. Congo Block

Offshore D.R. Congo
Block

Project status (production on the basis of all

Venture company

Interest owned

ﬁelds and average rate of FY2010)(established)(*operator)

Producing(Crude oil: 14 thousand bbl/d)

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

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

INPEX acquired a 17.03% working
interest in July 1970 in an offshore
area in the country now known as the
Democratic Republic of the Congo(DRC) and has been participating in
oil exploration and development inthis region. An additional interest was
acquired in July 1972, increasing its
participating interest to the current shareof 32.28%.

Net production by region

1%

5%

2%

billionthousand boed

million boe

21

¥12.7

Oil production commenced in1975 from the GCO Oil Field, which
was discovered in 1971. Including GCO,
11 oil ﬁelds have been discovered in
the Offshore DRC Block. The contract
covering this block was extended until
2023 in May 1995, and production levels
from existing ﬁelds remain stable.

Proved reserves by region30

1 Joslyn Oil Sands ProjectP.

Number of countries

7

Number of projects

18

Producing

11

Preparation for development

1

Exploration

6

Project Overview

Net sales by region
Contract area (block)58

Hangingstone Block

CANADA

UNITED S TATESOF AMERICA

3. El Ouar I /II Blocks
Contract area (block)El Ouar I and II Blocks

Project status

Venture company (established)

Interest owned (*operator)

Undeveloped

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

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

In November 2001, INPEX acquired a
10.29% working interest in the El Ouar I
and II onshore blocks located in eastern
Algeria. Exploratory drilling in 1997 andthe subsequent drilling of appraisal wells
conﬁrmed the presence of natural gas,condensate and crude oil in the El Ouar

I Block. Natural gas and condensate
were also found in the El Ouar II Blockin exploratory drilling in 2001. Joint
development studies of these blocks andsurrounding ﬁelds are currently ongoing.

Houston OfficeWest Cameron Blocks 401 and 402

Louisiana Block SL19372/SL20183
Main Pass Blocks 118
Ship Shoal Block 72
Walker Ridge 95/96/139/140

Block Cuervito
Block Fronterizo

4 Gulf of Mexico

Projects(U.S. and Mexico)P.

59

MEXICOP.

Caracas Office
Copa Macoya Block
Guarico Oriental Block
Carabobo Block, Project 3
Block 31 OP
Paramaribo Office

58 Copa Macoya / Guarico Oriental Blocks 2
VENEZUELA
COLOMBIASURINAME

Block 117BRAZILPERU
P.

59 Brazil (Frade Project and others) 3
BOLIVIAPA R AGUAY

OP Operator project
Exploration

056

INPEX CORPORATION Annual Report 2011

Preparation for development

BM-ES-23
BM-C-31
Frade Project
Rio de Janeiro Office

Producing

INPEX CORPORATION Annual Report 2011057

Copa Macoya Block, Venezuela

Copa Macoya Block, Venezuela

1. Joslyn Oil Sands ProjectContract area (block)

Project status

Venture company (established)

Interest owned (*operator)

Contract area
(block)Preparation fordevelopment

INPEX Canada, Ltd.
(November 28, 2006)

INPEX Canada 10% TOTAL* 38.25％
Occidental 15% Suncor 36.75%

Frade Project
BM-C-31

OSL 7404110452

BM-ES-23

In November 2007, INPEX acquired a
10% interest in the Joslyn Oil Sands
Upstream Project in Alberta, Canada.
The Joslyn project plans to conduct
a multiphase mining development,with a production plan of 100,000 bbl/
d by the second half of 2010 as Phase
1 development. The development
framework is currently underinvestigation.

Mexico (Cuervito)

3. Brazil (Frade Block and others)

OSL 7280060T24
OSL 7405070799

Brazil (Frade Block)

In regard to the oil sand upgrader(synthetic crude oil manufacturing)project in which we participate,
alternatives to the plant planned
by TOTAL in Edmonton are underconsideration.

Project status (production on the basis of all
ﬁelds and average rate of FY2010)

Venture company

Interest owned(established)(*operator)

Producing Crude oil: 62 thousand bbl/dNatural gas: 12 million cf/d

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

Frade Japão Petróleo 18.2609%
Chevron* 51.7391% Petrobras 30%

Exploration

INPEX Petróleo Santos Ltda.
(January 19, 2007)

INPEX Petróleo Santos 20% Petrobras* 60% Shell 20%

Frade Japão Petróleo Limitada (FJPL), a
joint venture established by INPEX andSojitz Corporation, acquired a 12.75%
working interest in the Frade Block in
Brazil’s offshore Northern Campos basin
in July 1999, and acquired an additional
2.25% in July 2001. As a result of thechange in interest ownership due toarrangements determined under contract,
FJPL’s working interest amounted to
18.3% in June 2006.

INPEX Petróleo Santos 15% Petrobras* 65% Shell 20%

After its initial discovery in 1986,
the reserves of the Frade Oil Field wereﬁrst estimated in 2001 with the drilling of
two appraisal wells after FJPL acquired aparticipating interest in the block. A ﬁnal
investment decision to develop Frade
was made in June 2006 after subsequentfeasibility studies. Commercial production
started in June 2009, marking the ﬁrst
crude oil to be produced in Brazil by anenterprise with a signiﬁcant Japaneseequity interest.

Project Overview

Joslyn Block, Canada

4. Gulf of Mexico Projects (U.S. and Mexico)
2. Copa Macoya and Guarico Oriental Blocks
Contract area (block)Contract area

Project status (production on the basis of

Venture company(block)all ﬁelds and average rate of FY2010)(established)

Copa Macoya

Producing
Crude oil: 1 thousand bbl/dNatural gas: 78 million cf/d

Teikoku Oil and Gas
Venezuela, C.A. (June 7, 2006)

Guarico Oriental

Interest owned

Ship Shoal Block 72

Teikoku Oil and Gas Venezuela 70% PDVSA 30%

West Cameron Blocks
401/402

Teikoku Oil and Gas Venezuela 30% PDVSA 70%

Main Pass Block 118

Project status (production on the basisof all ﬁelds and average rate of FY2010)

Venture company

Interest owned(established)(*operator)

Teikoku Oil (North America) 25% PetroQuest* 42.5% Other 32.5%
Producing
Crude oil: 1 thousand bbl/dNatural gas: 19 million cf/d

Teikoku Oil(North America)
Co., Ltd.
(May 30, 2003)

Louisiana Block SL19372

INPEX was awarded a 100% working
interest in a central onshore area, theEast Guarico Block in Venezuela in
July 1992. INPEX participated in oil
and natural gas ﬁeld rehabilitation andexploration and development activities
as an operator under the operating
service agreement (OSA) terms.
The existing OSAs were changed
to joint venture agreements in 2006 after
a change of policy by the Venezuelan

058

INPEX CORPORATION Annual Report 2011

Government. Based on the new policy,
INPEX established gas and crude
oil venture companies jointly withPetroleos de Venezuela, S.A. (PDVSA),
the Venezuelan national petroleum
company, and from April 2006 continued
the gas business in the Copa Macoya
Block and the crude oil business in the
Guarico Oriental Block. The new joint
venture agreement also features contract
extensions until 2026 for both blocks.

Teikoku Oil (North America) 16.66667% XTO* 50%
Other 33.33333%
Teikoku Oil (North America) 17.5% PetroQuest* 38.5% Other 44%

Louisiana Block SL20183
Walker Ridge
95/96/139/140

Teikoku Oil (North America) 25% PetroQuest* 38% Other 37%

Teikoku Oil (North America) 25％ PetroQuest* 55% Other 20％
Exploration

INPEX has participated in oil and gas
development projects in the shallow
waters of the U.S. Gulf of Mexico sinceApril 2006. Following production startup
from Ship Shoal 72 in July 2006, Main
Pass 118, West Cameron 401/402,
Louisiana SL19372 and SL20183 started
production.
We participated in deepwater
exploration blocks of Walker Ridge
95/96/139/140 in the Gulf of Mexico in

INPEX Gulf of
Mexico Co., Ltd.
(April 28, 2010)

INPEX Gulf of Mexico 15% Shell* 70% Other 15%

February 2011.
INPEX’s afﬁliate, Teikoku Oil de
Burgos S.A. de C.V., has participatedin gas development and production
operations in the Cuervito and Fronterizo
blocks located in the Burgos basin of
Mexico since 2004. This project has been
conducted under the multiple service
contract with PEMEX, and INPEX’s
afﬁliate holds a 40% working share ofthis project.

INPEX CORPORATION Annual Report 2011059

JapanNet income increased 11.2% to ¥104.5 billion, due to higher sales volume and a rise in the sales priceof natural gas. Operating income fell 20.3% to ¥26.0 billion, due to higher net purchases of natural gas.
Natural gas test in JapanNet sales by region

Net production by region

Oyazawa Plant (Nagaoka City, Niigata Prefecture)

Drilling crew in Japan

Yabase Oil Field in Akita Prefecture

Minami-Nagaoka Gas Field and the Domestic Natural Gas Business

Proved reserves by region

11%

6%

9%

billionthousand boed

million boe

25¥104.5

117

61 Naoetsu LNG

Akita Prefecture

Receiving Terminal(Under construction)

Higashi-Kashiwazaki Gas Field
Sekihara Gas Field (Underground storage)
Toyama Line (To be constructed )Niigata Cityy

NiigataMarketing OfficeKasshiwazaki
City

Itoigawa
City
Joet
Joe
Jo
oetsu
su CityittyyNiigata
Prefecture

Shin Oumi Line
Nag
Naga
Na
N
gano City
itt

Tomi BS

Mats
M
Ma
atsu
umot
umo
moto
mot
o CityC ty
yGunma Prefecture

Fujioka BS

Shin Tokyo Line
Matsumoto Line
NaganoPrefecture

Kofu Line
Sh
S
how
h
howa
owa
ow
wa
aT
Town
wn

Sodeshi LNG Terminal

Karuizaw
Ka
Kar
zaw
a a
Tow
To
own
Ch
C
hino Ci
hin
City
ty
y
Tom okaTomi
a City
Cit
oka

Go
ote
otemb
tem
mba
mb
mba
b
City
Cit
ty

Sh
h uokauo
oka
Shizuoka Shiz
City
City
Prefecture

Fuji City

Minamifuji Line

S
Sano
City
Konosuosssu
u CityHead Office (Akasaka, Minato-ku)
C a City
Chib
Ch
Samm
Sa
Sam
ammu City
Chiba
Prefecture

Naruto Gas Field
Chiba District Office

Itadzuma Power Control Center

Technical Research Center(Kitakarasuyama, Setagaya-ku)

Oil and gas fields

060

Natural gas pipeline network

INPEX CORPORATION Annual Report 2011

Minami-Nagaoka and nearby gas ﬁelds

dissolved in water at the Naruto Gas Fieldin Chiba Prefecture. Natural gas dissolvedin water is contained in underground“brine water.” We pump up the brinewater, extract natural gas and supply thegas to surrounding areas. The brine water
also contains high levels of iodine. We
reﬁne and export the iodine to Europe,
the U.S. and elsewhere.

Naoetsu LNG Receiving Terminal Overview

Ryomo Line

SaitamaOme
OOmmee CityPrefecture
Adachi-ku, TokyoA
Metropolitan
Tokyo(INPEX, Shizuoka Gas, Tokyo Gas)

annual demand to the 2.5 to 3.0 billion m3
range, reﬂecting further active expansionof the supply network into new regions
such as Toyama region where we decided
to construct Toyama Line (extending
from Itoigawa City, Niigata Prefecture to
Toyama City, Toyama Prefecture) in May
2011.
Supply capacity and reliability havebeen dramatically enhanced throughdynamic reinforcement of production
facilities, pipeline network expansion andthe introduction of LNG from Shizuoka
Gas Co., Ltd. in 2010. To boost the overall
scale of this business, INPEX has decided
to build an LNG receiving terminal at
Naoetsu, Joetsu City in Niigata Prefectureon the Japan Sea coast. The operational
start target is in 2014.
INPEX also produces natural gas

Isesaki Power Control Center

Honjjo
H
Honjo
oC
City

LNG

Approx. 1.72 billion m3

Construction of Naoetsu LNG Receiving Terminal

JAPAN

Tochigi Prefecture

Yamanashi
Prefecture
Iruma Line
Kofu C
Kofu
City

Shizuoka Line

[Shizuoka Gas]

Natural gas sales (FY 2010)

Minami-Nagaoka
Gas Field
P. 61

Domestic Natural Gas

Tokyo Line

Second Suruga Trunk Line

Niigata District Office
Minami-Aga Oil Field
Minami-Kuwayama Oil Field

Nagao
Naga
oka CityyToyamaPrefecture

Natural gas: Approx. 3.4 million m3/d
Crude oil and condensate: Approx. 4 thousand bbl/dDiscovered in 1979 and in production
since 1984, Minami-Nagaoka is one of
the largest gas ﬁelds in Japan. Even
after more than 25 years of continuous
output, Minami-Nagaoka still accounts
for approximately 40% of Japan‘s total
natural gas production. After being
processed, the natural gas is transported
through a 1,400-km trunk pipeline
network stretching across the Kanto andKoshinetsu regions that surround thegreater Tokyo metropolitan area, anddelivered to city gas companies andindustrial customers along this network.
INPEX has experienced substantial
sales growth over recent years, due tosharp rises in the prices of competing
fuels as well as the highly environmentallyfriendly attributes of natural gas. The
medium- to long-term projection is in

Yabase Oil Field
Akita District OfficeP.

Producing: Total oil and gas ﬁelds(FY 2010 average)

Project Overview

Domestic Natural Gas Overview※BS・・
・Booster station

Major office or district office

0

100km

Location:

12 Yachiho, Joetsu City, Niigata Prefecture

Lot area:

Approx. 25 ha

Gas production capacity:

750 million m3/day (LNG 240 tons/hour)

LNG tank:

180 thousand kl × 2 (upgrade possible)

Operational start target:

in 2014

We expect domestic demand for natural
gas to rise steadily and continue to beﬁrm due to factors such as the switch
to natural gas from oil as consciousness
about the environment and energy
conservation increases, higher oil prices.
To ensure stable supply to the domestic
natural gas market over the medium tolong term, INPEX has been engaged inconstructing an LNG receiving terminal
in Joetsu City (the port of Naoetsu) in

Niigata Prefecture on the Japan Sea
coast since 2009. The target operational
start-up date is in 2014. Afterwards, weplan to receive LNG from our overseas
projects at the Naoetsu terminal, andby combining that supply with existing
domestic supplies from Minami-Nagaoka
and other ﬁelds we will be able toenhance the capacity and stability of our
supply structure.

Naoetsu LNG Receiving Terminal (Artist's rendering)

INPEX CORPORATION Annual Report 2011061

Gas Supply Chain

Recovery and protection of mangrove forests in Indonesia

We will establish a gas supply chain byorganically connecting the overseas
LNG with the domestic natural gas
infrastructure, so as to meet natural gas
demand in Japan, which is expected tocontinue to be ﬁrm. What this means isthat we will receive supplies of LNG fromoverseas sources, such as Ichthys andAbadi, at our Naoetsu LNG Receiving
Terminal, and employ the pipeline
network to supply natural gas to all of

our customers. This will enable us to
ﬂexibly combine three supply sources– 1)
domestic natural gas, 2) regasiﬁed LNG
from Shizuoka Gas Co., Ltd. (which webegan receiving in January 2010), and 3)
regasiﬁed LNG received at Naoetsu. We
believe that this will result in improved
supply capacity and enhanced supply
stability, allowing us to meet future
demand increases.

Until now, there had been nocompany in Japan equipped with acomplete natural gas infrastructure,from development and production
through liquefaction, transport andregasiﬁcation, and supply. Building a
total gas supply chain covering upstream
and downstream processes is one of the
beneﬁts of business integration, and it
will be our base of support in developing
an energy business suitable to thecoming era of natural gas use.

Corporate Responsibility
and Management
4.1

Corporate Social Responsibility

Corporate Governance

069

Management System / Independence of Outside Directors andDirector Compensation / Internal Control and Compliance System /A Special-Class Share / Disclosure

Three natural gas supply sources
1 Domestic natural gas

4.3

Performance / Message064

HSE (Health, Safety and Environment) Basic Policies /Environmental Impact of Our Business /Environmental Technologies / Operational Safety /Community Support / Development of Human Resources

4.2

Business Overview

4

Inspecting for leaks at a valve station

Project Overview

Construction at the Naoetsu LNG Receiving Terminal

Board of Directors, Auditors and Executive Ofﬁcers 074

2 Regasified LNG from Shizuoka Gas Co., Ltd.
3 Naoetsu LNG Receiving Terminal
Operational start target in 2014

Market Status
Domestic natural gas sales (FY2010)

1.72 billion m

Approx.

3

1 Minami-Nagaoka Gas Field(1.2 million tons/year for LNG equivalents)

Medium-to long-term expected demand:
Approx.

2.5–3.0 billion m

3(1.8-2.2 million tons/year for LNG equivalents)

Natural Gas Pipeline Network(approx. 1,400 km)
Sales to consumers along lines

Overseas
LNG Sources
Ichthys LNG Project
Abadi LNG Project
2 Sodeshi LNG Terminal (Shizuoka Gas)

062

INPEX CORPORATION Annual Report 2011

Corporate Responsibility
and Management

the Naoetsu LNG Receiving Terminal

Financial /Corporate Information

3 Regasified LNG from

Corporate Social Responsibility
INPEX actively implements corporate social responsibility (CSR)
activities based on the recognition that CSR is inextricably linked toour business operations. We fulﬁll the social responsibility that grows
together with the expansion of our business and contribute to building
a sustainable society through the stable supply of energy.

2. Environmental Impact of Our Business
INPEX monitors how business activities in each process affect the naturalenvironment and tackles the reduction of any adverse impact by reducing emissionsof VOCs (Volatile Organic Compounds), PRTR (Pollution Release and Transfer
Register) substances, etc.

1. HSE (Health, Safety and Environment) Basic Policies

Business processes and emission amounts for main substances
For further details on our activities, pleaserefer to the CSR Report 2011.
http://www.inpex.co.jp/english/csr

CSR Report 2011 pp. 20 –23

Overview of the HSE Management System
INPEX has a unique HSE Management
System that is based on the guidelinesof ISO9000, ISO14001, the occupational
Health and Safety Management System(OHSAS18001, OSHMS) and theInternational Association of Oil & Gas
Producers (OGP).
The HSE Management System
encompasses a document architecturethat includes the HSE Policy, which
declares our company’s basic policies forenvironmental preservation and ensuring
operating safety; the HSE Management
System Manual; and sets of Corporate

We place particular focus on HSE
activities, which are a part of our CSR
initiatives. The mission of the INPEXGroup is to provide a stable and efﬁcient
supply of energy to customers so as
to contribute to the community andmake it more livable and prosperous.
To fulﬁll our mission, it is essential that
we conduct thorough safe management
and environmental preservation andthat we build a trusting relationship withboth domestic and overseas customers.
Requests from society and measures
toward the environment change every
day according to conditions in global
society. However, we view operationalsafe management, environmental
preservation and coexistence/mutual
prosperity with the community as
essential and continuing activities.

Initiatives for Promoting and
Implementing the HSE Management Systemin each Operational Organization, thecommittee deliberates and follows up on
the HSE Activity Plans and the Corporate
HSE Procedures, and conducts a review for
fostering the HSE culture.
We held eight Corporate HSE
Committee meetings during the year
ended March 31, 2011. Discussion washeld regarding the content and record

Production andPower Generation

Reﬁning,
Transportation and Sales

Domestic/overseas explorationand development operations,construction of domestic LNG
receiving terminal, etc.

Production of crude oil andnatural gas, power generation
using natural gas andcondensate, etc.

Reﬁning of crude oil,transportation via natural gas
pipelines, reﬁning/sales ofiodine, etc.

Philosophy of CSR and
HSE Activities

HSE Procedures and Guidelines. The
organizational structure comprises HSE
Committees established at headquarters
and in the Operational Organizations. The
HSE Objectives and action plans for the
HSE Programs are devised each year. The
effectiveness of the HSE Management
System is heightened through HSE
reviews during the design stage and by
HSE audits for the A-PDCA (Access-PlanDo-Check-Act) management cycle, which
begins by risk assessment.

The HSE Management System isimplemented by the HSE Unit at
headquarters. When necessary,
implementation is performed by the HSEGroups organized for our Operational
Organizations.* To promote systematicand Group-wide HSE initiatives, weestablished the Corporate HSE Committee.
Together with the HSE Committees

Exploration,
Development and Constructionof the HSE objectives and programs,
as well as the results of the HSE audit.
Furthermore, the HSE Units and the HSEGroups have been working on further
improvement of HSE activities by hiring
HSE specialists and conducting employee
training through OJT (on-the-job training).
* Operational Organization: Department in chargeof operator projects

Framework for implementing the HSE Management System

Pipeline construction site

Koshijihara Power Plant

Year ended
March 31, 2011

Year ended
March 31, 2010

Year ended
March 31, 2011

Year ended
March 31, 2010

Year ended
March 31, 2011

24,60522,280388,495

348,695

26,342

21,530PRTR substances (t)

0

0

12

11

8

23

VOCs (t)

1

3

448

343

433

386

GHGs (greenhouse gases) (t)Note: Data on the output of PRTR substances was collected only from our operations in Japan.

3. Environmental Technologies
INPEX contributes to reduced environmental impact through technology forunderground/ocean storage of CO2 and through R&D for technologythat uses CO2 and water as materials for generating methane.

Methane Generated by
Photocatalytic Reactions
As a technological development for the
efﬁcient usage of CO2, we are currently
performing research and development forphotocatalytic reactions, which generatemethane from CO2 and water. We havealready achieved research results ofgenerating methane and a by-productof a high-value-added organic material.
We are working to realize future practicalapplication of this research as an effective
technology for reducing CO2 emissions.

Research for Carbon
Dioxide Capture andStorage (CCS)

Masatoshi Sugioka(Vice Chairman in charge of HSE)

separates, captures and stores CO2
underground. We conduct various surveys
and research jointly with Japan CCS
Co., Ltd., in cooperation with industry,
government and academia to spread the
CCS technology and respond to global
warming.

INPEX is active in CCS technology, which

Transport CO2

Inject CO2

Separate and capture CO2

Ground injection well(President & CEO)For details, refer to the
CSR Report 2011 pp. 32 – 33

Conceptual diagram of CCS

Corporate HSE Committee
Toshiaki Kitamura

Pipeline truss bridge

Year ended
March 31, 2010

Corporate Responsibility
and Management

INPEX continually improves and enhances our labor health and safety
and environmental preservation under our in-house HSE Management
System, which coordinates our health, safety and environmental
practices.
For details, refer to the

For details, refer to the
CSR Report 2011 pp. 26 –27

Transport CO2

Inject CO2
Offshore injection well

Major source of CO2

Transportation via pipeline
Operational Organization

Operational Organization

Operational Organization

Operational Organization

Operational Organization
Representative

Operational Organization
Representative

Operational Organization
Representative

Operational Organization
Representative

HSE Committee

064

INPEX CORPORATION Annual Report 2011

HSE Committee

HSE Committee

HSE Committee

CO2Impermeable layer
Undergroundaquifer

CO2

Aquifer beneathocean floor

INPEX CORPORATION Annual Report 2011065

4. Operational Safety

5. Community Support

INPEX promotes thorough operational safety in order to ensure the stable production andsupply of oil and natural gas. In addition to implementing safety activities in accordance withthe country of operation and operating conditions, each Operational Organization works toperform accident prevention together with contractors and to reduce environmental impact.

In addition to actively communicating in the communities where our projects areoperated, INPEX conducts numerous activities for contributing to the sustainable
development of communities while also seeking harmony with local society.

For details, refer to the
CSR Report 2011 pp. 38 – 41

Ensuring Operational Safety■ Repaired Elementary School
Management Team will respond. When the
Great East Japan Earthquake occurred in
March 2011, the Team took action to checkthe damage within the ﬁrst two days. We
also revised our Business Continuity Plan
(BCP) assuming the Tokyo metropolitan
area as the epicenter of an earthquake
based on the experience of this disaster.

Discussion among members of the Corporate Crisis
Management Team after the Great East Japan Earthquake

Number of work-related accidents per year
Company
Year ended
Contractor
March 31, 2009
OverallCompany
Year ended
Contractor
March 31, 2010
OverallCompany
Year ended
Contractor
March 31, 2011
Overall

Fatal incident

Lost time injury*1

0
2
2
0
0
0
0
0
0

3
4
7
0
9
9
2
3
5

Restricted
Medicalworkday injury*2 treatment injury*3

1
5
6
1
3
4
0
0
0

066

INPEX CORPORATION Annual Report 2011

■ Supporting Project forInternational Hunting andEquestrian Exhibition

Greenhouse Agriculture
in Regions with Pipelines

Since 2004, we have been exhibiting
every year in the UAE Abu Dhabi
International Hunting and Equestrian
Exhibition. In 2010, our booth introduced
traditional Japanese culture by featuring
Japanese falconry and sword-making.
Visitors to our booth were served
green tea.

We support greenhouse agriculture invillages in Azerbaijan, a region throughwhich the BTC pipeline passes. In
addition to installing greenhouses andproviding crop seeds, we conduct
education and training for the villagers.

7
23
30
3
13
16
2
2
4

Accident Frequency by Yearand the speciﬁc needs of particular
projects.
Furthermore, we are working toconduct even safer onsite construction
by strengthening HSE-related
communications through process
meetings with contractors and throughpre-work meetings. Safe management bycontractors is a priority objective of ourcompany and one that shall be improved
further in the future.

reviewing and implementing reforms
for the methodology of selecting
drilling contractors, the form of HSE
Management, the design standards fordrilling wells, the policy documentation
for drilling wells and the content of our
prevention/response plan for oil leaks.
An assessment of response conditions atmajor oil companies issued by the OGP is
also used to formulate reforms. Throughthese actions, we are working to prevent
marine blowouts.

Students and teachers from San Antonio Elementary School

Participating in the Abu Dhabi International Hunting andEquestrian Exhibition

A representative from the BTC pipeline instructs
a local worker

Domestic Community Support Activities■ Reforestation Support Project

Marine Blowouts and Related Responses
In April 2010, an oil drilling rig explodedand caught ﬁre at another company’s welldrilling site in the U.S. Gulf of Mexico.
Eleven people were killed and large
quantities of leaked crude oil gushed into
the Gulf of Mexico. The ﬂow of crude oil
was stopped approximately three months
after the accident. Related government
agencies in the United States are still
investigating the causes of the accident.
While monitoring the progressof that investigation, we are

In 2010, Gas Guarico, S.A., which is
capitalized and operated by INPEX,
received a request from local citizens
regarding renovating an elementary
school. Based on their requests, wehave refurbished the classrooms, kitchen
facilities and playgrounds, as well as
installed new water supply facilities andﬂush toilets, at three schools including
San Antonio Elementary School, which islocated close to the gas ﬁelds.

■ Exhibited in the Abu Dhabi*1. Incident involving a nonfatal injury that results in at least one day off work *2. Incident involving a nonfatal injury that results
in restricted duties *3. Incident involving a nonfatal injury that requires treatment by a medical professional

Safety Management by Contractors
INPEX promotes all contractors having
an understanding of our HSE Policy, andwe work closely with them in an effort
to prevent work-related incidents andreduce environmental impact.
Operational Organizations both
domestic and overseas have translated
the Corporate HSE Procedure forContractors’ HSE Management into theirown Contractors’ HSE Management
Manual that meets regional requirements

Facilities in Venezuela

Corporate Responsibility
and Management

Every year, we set numerical targets forsafety management by referring to safety
data owned (assessed) by the OGP.
In response to the oil spill incident at
another company's project that occurredin the Gulf of Mexico, we have revised
our safety management policy, including
HSE review for our operator projects. The
Operational Organizations in Japan work
to strengthen construction inspections
and ensure thorough safety management
in conformance with the HSE plans.
Through such activities, the Operational
Organizations achieved signiﬁcantreductions in work-related accidents anddisasters. The Overseas Operational
Organizations conduct safety actions inaccordance with each operation.
In case of an operation-related
emergency, the Corporate Crisis

Overseas Community Support Activities

For details, refer to the
CSR Report 2011 pp. 48 – 51

*1. Lost time injury frequency (LTIF): Rate of injuries resulting
in fatalities or lost time per million hours worked*2. Total recordable injury rate (TRIR): Rate of recordable
injuries (fatalities, lost time, restricted workdays andmedical treatment) per million hours worked
Note: Targets for LTIF and TRIR are calculated annually byconsidering a reduction rate that is applied to the target forthe previous year.

INPEX participates in the Reforestation
Support Project conducted by Niigata
Prefecture. In the project, not well-kept
lands are provided free-of-charge bylandowners. We then raise trees thatare ideal for that region. Activities heldin the autumn of 2010 and the springof 2011 featured participation fromapproximately 160 volunteers, including
INPEX employees and their families, aswell as local citizens. We planted 300
trees including beech and oak, held ecoworkshops and provided assistance toseedlings that had been knocked over bysnow. In the autumn of 2011, we planted
walnut trees in addition to other treesthat had been planted in the past.

■ Support Activities

for Local Communities
We actively participate in and cooperatewith a variety of events held in the local
communities where we operate ourbusiness.
Every year, we support the Nagaoka
Festival Fireworks Show held in Nagaoka
City, Niigata Prefecture, which is where
our main domestic production baseis located. Also in Niigata Prefecture,
our employees volunteer to support
a local marathon in Kashiwazaki Cityand participate in the Gion KashiwazakiFestival. More than 100 representatives ofour company participated as dancers in
the Gion Kashiwazaki Folk Parade and the
Niigata Festival Giant Folk Parade held inthe summer of 2010. We also participatedin the 65th National Sports Festival in
Chiba Prefecture.

Reforestation support project

Gion Kashiwazaki Festival

INPEX CORPORATION Annual Report 2011067

Corporate Governance
To raise the corporate value and to continue to exist as a company that is trusted bystakeholders such as shareholders and all of society, we recognize the importance ofthoroughly implementing compliance and improving the efﬁciency and transparency ofmanagement, and we are working to enhance corporate governance.

6. Development of Human Resources
Training of global professionals(The information below is current as of the end of June 2011, unless otherwise stated.)

1. Management System
For details, refer to the
CSR Report 2011 pp. 42 – 45

Leveraging Global Human Resources■ Actions in Ichthys, Australia■ Actions in Abadi, Indonesia

At our domestic and overseas Australianofﬁces, we employ more than 400 workers
including Australians, British, French
and Japanese. Workers are involved inprojects such as the Ichthys LNG Project.
In Australia, we recruit staff in accordancewith Australian employment guidelines toprovide equal opportunity employment.
Beginning from 2010, we launched the
INPEX@heart program in order to create
a comfortable working environment. In
March 2011, in conjunction with Harmony
Week in Australia, we held workshops andsocial gatherings in our ofﬁces as part of
the INPEX@heart program. Through suchactivities, we seek to create a workplaceenvironment and team atmospherethat fosters equality among workers ofdifferent races and nationalities.

As part of the Abadi Project in Indonesia,
176 employees from seven countries
work at our Jakarta Ofﬁce. The majorityof employees are Indonesian (103) orJapanese (52). As work proceeds in the
future, we forecast that even more global
professionals will work at the Jakarta
Ofﬁce. In March 2011, we establisheda Code of Conduct that applies to all
personnel working at the ofﬁce. This
code is intended to ensure respect andthe continuity of a safe and harmonious
workplace environment that is basedon the principles of integrity, trust andfairness. Senior management from theofﬁce explained the Code of Conduct tolocal employees, and actions are being
taken to ensure that the code is ﬁrmly
instilled among the staff.

INPEX@heart Program (Australia)

Brieﬁng session on the Code of Conduct (Indonesia)

Employee Statistics
As of March 31, 2011, the INPEX Group
employed a total of 1,854 persons(consolidated) consisting of 1,613 males
and 241 females. We also hire an averageof 774 temporary employees, including
local contract employees, domestic part-

Employee Breakdown (Consolidated)time staff, non-full-time contract staff
and temporary stuff. The number of
employees from outside Japan accounts
for slightly less than 20%.

■Japan ■Asia & Oceania ■South America■Middle East & Africa ■Eurasia (Europe & NIS countries)■North & Central America
8.2 5.2 3.7 0.9 0.6

81.4

By
RegionMale/
FemaleFemale (241)Male (1,613)
（%） 0

20

40

60

80

Recovery Support for Disaster-Affected Areas of the Great East Japan Earthquake100[ 1] Directors andBoard of Directors

Overview of the corporate
governance systeman Executive Committee with attendance
by full-time directors and managing
executive ofﬁcers. The meetings are held
weekly and as necessary. At the Executive
Committee, ﬂexible decision making is
conducted for resolutions not afﬁliated with
the Board of Directors, and deliberation isheld to contribute to decision making by
the Board of Directors.
Moreover, we implemented an
Executive Ofﬁcer System from October
2008 in order to respond accurately andquickly to a rapidly changing management
environment and the expansion of ourbusiness activities. The Executive Ofﬁcer
System seeks to clarify a system for the
execution of business and strengthen a
ﬂexible and efﬁcient management system.

Regarding deliberation and decision
making related to conducting importantbusiness in the development of oil andnatural gas, INPEX appoints outside
directors in addition to the knowledgeable
directors from within our company. This
ensures the validity of decision making
through a rational, efﬁcient and objective
perspective.
Our Board of Directors consists of
15 directors, four of which are outside
directors. In addition to a monthly
meeting, the Board of Directors meetsas necessary in order to discuss anddetermine the execution of importantmatters. The board also supervises theexecution of duties by directors.
Furthermore, our Board of Directors
collects written pledges from all directors
including outside directors. This is done toensure conformance with the Companies
Act when taking a proper response
toward the duty of noncompetition, theprevention of information leakage and theimplementation of appropriate measures
toward transactions with a potential
conﬂict of interest.

[ 3] Board of Statutory Auditors
and Statutory Auditors
INPEX has adopted a statutory auditor
system. The Board of Statutory Auditors is
composed of ﬁve members, including four
outside auditors.
In addition to attending meetings ofthe Board of Directors and the Executive
Committee, the statutory auditors
review the execution of business duties
by directors through reports given by
and hearings for related departments.
Furthermore, the statutory auditors receive
reports from the independent auditors
regarding audits held six times per year
and as necessary. They also conduct[ 2] Executive Committee andExecutive Ofﬁcer System
From the perspective of increasing the
speed of decision making related to the
execution of business, we have established■Organizational structure ........ Company with.................................................statutory auditors■Percentage of shares held by foreigners(as of March 31, 2011) ...............................40.2%■Directors
Number of directors as stipulatedby the Articles of Incorporation .......................16
Number of directors(number of outside directors) .....................15 (4)Term......................................................... 2 years■Statutory auditors
Number of statutory auditors as stipulatedby the Articles of Incorporation .........................5
Number of statutory auditors(number of outside auditors) .......................5 (4)Term......................................................... 4 years■Rights plan and other measures toprotect against acquisition....................None■Other ............Issuance of a special-class share................................ to the Minister of Economy,...............................................Trade and Industry

regular meetings (ﬁve or six times per year
or as necessary) with the internal audit
department (Internal Audit Unit) to receive
reports regarding internal audits and theevaluation of internal controls.
To strengthen the function of thestatutory auditors and to ensure viablecorporate governance, we are working toenhance ancillary staff for the statutory
auditors and form partnerships throughperiodic meetings between the statutory
auditors, the Internal Audit Unit and the
independent auditors. Moreover, wehave constructed a system to strengthen
the monitoring function through periodic
meetings with the representative directors
and directors.

Corporate Responsibility
and Management

INPEX hires and trains the necessary personnel regardless of nationality. Employeesof various nationalities work at our Tokyo headquarters and our overseas ofﬁces.
Furthermore, for overseas operator projects, local employees are directly hired andtrained.

Corporate governance framework
Shareholders' Meeting

068

Support for Affected Areas

Volunteer Activity in Affected Areas

To contribute to the recovery ofdisaster-affected areas, we havemade ﬁnancial donations throughthe Japanese Red Cross Society,provided relief aid including oil
products such as gasoline, andadditionally supplied crude oil/LNG
in order to deal with the shortageof electricity.

INPEX supports employees who volunteer to assist
with efforts to recover from the recent earthquake. We
provide them with accommodation, transportation fareand expenses, as well as the tools to perform recovery
work, as well as providing volunteer leave. In July 2011,
31 employees from the Tokyo head ofﬁce participatedin such activity as removing rubble and debris, cleaning
up farms and mowing grass in the city of Rikuzentakata,
Iwate Prefecture.

INPEX CORPORATION Annual Report 2011

Appoint/dismiss

Independent
Auditors

Appoint/dismiss

Coordinate

Board of Statutory Auditors
5 Statutory Auditors including 4 Outside Statutory Auditors

Accounting audit

Coordinate

Audit

Appoint/dismiss
Audit
Coordinate

Board of Directors
15 Directors including 4 Outside Directors
Appoint/supervise/dismiss

Accounting audit

Appoint

Executive Committee
President
Volunteer Activity in Rikuzentakata City

ReportAudit Unit
14 dedicated members

Internal audit

Executive Officers

9 Concurrent Directors and Executive Officers
24 Executive Officers (Total 33)

Divisions and Subsidiaries

Compliance
Committee

INPEX CORPORATION Annual Report 2011069

Compensation paid to the CPAs and related parties (Year ended March 31, 2011)

3. Internal Control and Compliance System

Name of the CPA ﬁrm:

Ernst & Young ShinNihon LLC[ 1] Internal Control Systems

Names of the CPAs:

Kenji Endo, Yusuke Kosugi, Satoshi Takahashi

Accounting audit members:

12 CPAs, 12 assistant CPAs and 16 others

Compensation for auditing services:

INPEX: ¥137 million; Consolidated subsidiaries: ¥80 million

Compensation for non-auditing services:

INPEX: ¥39 million; Consolidated subsidiaries: ¥6 million

For proper and efﬁcient company
operations and to prevent the occurrence
and expansion of losses, INPEX conducts
appropriate business management by
our Board of Directors and Executive
Committee, and develops internal rules
such as our Articles of Incorporation, job
demarcation, administrative authority
and group companies management.
We also created our Corporate Social
Responsibility Policy, developed asystem for its adherence and thoroughimplementation, and developed acompliance system, internal notiﬁcation
system, risk management system andinternal audits.
In accordance with the Internal
Controls Reporting System (enacted
April 2008) stipulated by the Financial
Instruments and Exchange Act, weformed a special evaluation team within
the Internal Audit Unit and evaluate
the maintenance and operation ofinternal controls related to ﬁnancial
reporting for our company and the groupcompanies. As the result of evaluations
performed at the end of March 2011,
we have judged that internal controls
associated with ﬁnancial reporting arefunctioning effectively. In June 2011,details of the evaluation were submitted
to regulatory agencies in the form of areport on internal controls. Furthermore,
our internal controls report received an
unqualiﬁed opinion of appropriatenessfrom its independent auditors.

In accordance with the Companies
Act and the Financial Instruments andExchange Act, we accept accounting
audits from Ernst & Young ShinNihon
LLC. The amount of compensation paid
to the CPAs is determined in total basedon the audit plan and the number ofauditing dates, after obtaining approval
from the Board of Auditors.

2. Independence of Outside Directors and Director Compensation[1 ] Independence of Outside
Directors/Outside Auditors
Regarding the appointment of outside
directors, we place importance on
evaluation for the validity of businessdecisions and consideration of their
efﬁcacy, professionalism and objectivenessin the oversight function in addition to theperspective of independence.
Each of our company’s four
outside directors possesses a broad
range of knowledge and many years ofexperience in the energy industry. Also,these directors are shareholders of ourcompany and serve as directors andan advisor of companies that conductbusiness in the same ﬁeld as we do.
Therefore, we recognize the importance of
paying special attention to the possibilityof competition and other conﬂicts ofinterest. In response, we collect written
pledges from outside directors in order toensure conformance with the Companies
Act when taking a proper response
toward the duty of noncompetition, theprevention of information leakage and theimplementation of appropriate measures
towards transactions with a conﬂict ofinterest. These written pledges are the[ 2] Director Compensation
In the business of developing oil andnatural gas, a long period of time isrequired from starting business until therecovery of investment. Therefore, we
believe that it is inappropriate to reﬂect
short-term performance in director
compensation.
Compensation for directors
consists of monthly compensation (basic
compensation), which is issued basedon the business duties for each director
position, and a bonus based on company
performance. Compensation is decided
by the Board of Directors. Similarly,
compensation for the statutory auditors
consists of monthly compensation (basic
compensation) and a bonus, decided
through consultation with the statutory
auditors.
The table below shows the amount ofcompensation for directors and statutory
auditors for the year ended March 2011.
Note that the retirement beneﬁts plan was
abolished in 2008 as a result of a revisionin the form of the director compensation
system.

Attendance at board meetings

Compensation paid to directors and auditors(Year ended March 31, 2011)(Year ended March 31, 2011)

Name

Attendance times

Kazuo Wakasugi

Board of Directors meetings 17/17

Outside Yoshiyuki Kagawa
directors Seiji Kato

Outsideauditors

070

same as those submitted by internal
appointees.
When appointing outside auditors,
we believe that it is important tocomprehensively consider factors such as
independence, efﬁcacy in the oversightfunction and professionalism.
The four outside auditors forma majority on the Board of Statutory
Auditors with a total of ﬁve members. The
outside auditors possess rich knowledge
and experience in our company’s business,
as well as in ﬁelds such as ﬁnance andaccounting. The statutory auditors utilize
these qualities when performing auditing
activities for our company. One of theoutside auditors also serves as a director
at Japan Petroleum Exploration Co., Ltd.
(JAPEX), a corporation that owns stock in
our company. JAPEX conducts businessin the same ﬁelds as the business of ourgroup. Listed companies are required
to appoint an independent executive inorder to protect general shareholders.
Our company has appointed theoutside auditor Haruhito Totsune as anindependent director required by the
Tokyo Stock Exchange, Inc. from theperspective of the protection of investors.

Directorclassiﬁcation

Board of Directors meetings 11/14
Board of Directors meetings 14/17

Haruhito Totsune

Board of Directors meetings 15/17
Board of Auditors meetings 15/15

Koji Sumiya

Board of Directors meetings 14/14
Board of Auditors meetings 11/11

Hiroshi Sato

Board of Directors meetings 16/17
Board of Auditors meetings 14/15

Masaru Funai

Board of Directors meetings 12/14
Board of Auditors meetings 11/11

INPEX CORPORATION Annual Report 2011

Total amount of compensation
paid by type of compensation(¥ million)

Number of directors
eligible forbasic compensation

Basic
compensation

Bonus

546

448

98

14

(excluding outside
auditors

33

31

2

2

Outside Directors

68

58

9

9

Directors(excluding outside
directors)

Statutory Auditors

To conduct integrated actions throughout
our entire company, we established aCompliance Committee in April 2006.
Our company’s Vice Chairman serves
as the chairperson (director in chargeof compliance) of the committee. The
committee works together with thestatutory auditors, the Board of Statutory
Auditors, the independent auditors
and the Internal Audit Unit, which is theinternal audit department. Through thiscooperation, the committee proposes/
implements compliance measures,monitors the status of implementationand holds activities to increase
compliance awareness. Moreover,the committee receives reports on
violations and implements stoppage
recommendations and other responses
to investigated violations. The committee
also formulates measures to prevent thereoccurrence of violations.
In addition, an internal notiﬁcation
system was established in April 2006
in accordance with the Whistleblower
Protection Act. The system is available
for use by the directors and employees
of our company. Anonymous reportingis possible and whistleblowers arethoroughly protected to ensure that they
are not subject to unfair treatment.
As a form of compliance education,
we distribute a compliance manual andcompliance Q&A. The goal of thesematerials is to have each employee
implement compliance activities.
Furthermore, we conducted domestic
compliance training seminars andprograms a total of 66 times from March

to July of 2010. The training was basedon results of a compliance questionnaire
distributed in December 2009 to all
directors and employees of our company.
At the training, an explanation wasgiven for the themes and suggested
reforms ascertained through thequestionnaire. The training also sought
to reconﬁrm fundamental complianceconcepts, increase awareness mainly
toward information security and provide
education on human rights related tovarious forms of harassment. In addition,
we established a compliance committee
Web site on our company intranet
in December 2010, and we began
publishing a monthly internal newsletter
titled Compliance Journal. Throughall these measures, we are working toincrease the level of awareness toward
compliance.

Compliance framework(Internal notiﬁcation system)

Board of Directors
Appoint

ReportCompliance Committee
Director in Charge of Compliance
Committee Chairperson: Masatoshi Sugioka

Compliance Committee Members(Heads of Business Divisions)

Anonymize

ReportGeneral Administration Unit

External
Consultation

In-house
Department inConsultation Charge of Compliance(Lawyer)

Report / consult

Report / consult

Officers and Employees

EnglishJapaneseJ

4. A Special-Class Share(¥ million)

Board of Directors meetings 13/17

Shigeo Hirai

Totalamount ofcompensationpaid[ 2] Actions for Improving the
Efﬁcacy of ComplianceCorporate Responsibility
and Management[4] Accounting Audit andAuditor Compensation

Notes:
1. The Company does not maintain a stock option plan. 2. The Company does not maintain an accrued retirement
beneﬁts plan. 3. The total amount of compensation paid includes a provision to accrued bonuses to directors for theyear ended March 31, 2011. 4. The number of directors eligible for compensation includes three directors including one
outside director who retired by termination during this term and two statutory auditors including one outside auditor who
retired by resignation from the Company effective June 23, 2010 at our 4th ordinary General Meeting of Shareholders.
5. Compensation was not paid to one of the 16 directors as of March 31, 2011.

According to the stipulations of the
Articles of Incorporation, INPEX issues
a special-class share to the Minister of
Economy, Trade and Industry. This sharepossesses inﬂuence on certain major
corporate decisions. The special-classshare does not possess voting rights atshareholders’ meetings. However, it ispossible for the holder of the specialclass share to exercise veto rights forcertain major corporate decisions. For

our company, the issuance of the specialclass share to the Minister of Economy,
Trade and Industry is an effective
countermeasure to prevent control overthe business of our company or against
hostile takeovers for speculative purposes.
Furthermore, we expect positive results interms of external negotiation and credits.

Compliance manuals(For details, please refer to the section titled “SpecialClass Share” on pages 95-96.)
Compliance Q&A

Compliance Journal

INPEX CORPORATION Annual Report 2011071

5. Disclosure
Disclosure Policies

To improve the transparency of management and the accountability of managers, we
conduct timely, appropriate and fair disclosure of information through our Web site,
public relations activities and IR activities toward shareholders and investors.

To achieve the appropriate disclosure of information, we have established internal regulations
for corporate information disclosure and deﬁned the process for collecting, managing,transmitting and disclosing information throughout our company. A summary of disclosure
and other policies based on the aforementioned regulations is listed below. Please refer toour company’s Web site (http://www.inpex.co.jp/english/ir/policy.html) for further details.

1. For invigorating the general meeting of shareholders
and promoting effective voting
Supplementary explanation

At the 5th Ordinary General Meeting of Shareholders held on
June 28, 2011, we sent convocation notices on June 10, which
was earlier than the period stipulated by law.

Use of voting rights
through the Internet

We implemented the use of voting rights via the Internet. We
also adopted a platform for the electronic use of voting rights.

Other

The convocation notice and other related documentation
are available in both Japanese and English (summary) on ourcompany’s Web site. On the day of the shareholders’ meeting
we used videos and a slide show to explain our business prior
to opening the meeting.

1. Basic Policy

The 5th Ordinary General Meeting of Shareholders(held June 28, 2011)

Our basic approach is to disclose theinformation that our shareholders andinvestors need in a timely, appropriate
and fair manner in order for them tomake decisions concerning investment
in our securities. We also actively
engage in public relations activities
to foster a deeper understanding
among all stakeholders concerning ourbusiness activities.

2. Internal System
for Timely Disclosure

2. Enhancing IR activities
IR fair for individual investors (held March 2011)
Supplementary explanation

Regular IR presentations
for individual investors

We participate in events such as IR fairs forindividual investors and meetings in venues
such as branches of brokerage ﬁrms. For
the year ended March 31, 2011, we held 13
meetings in six cities throughout Japan. The
meetings were attended by more than 1,500
individual investors.

Regular IR presentations
for analysts
and institutional
investors

We hold biannual meetings on ﬁnancial
results for analysts and institutional
investors. Our president and director in
charge of ﬁnance & accounting explain ourﬁnancial details and business forecast to
approximately 200 analysts and institutional
investors. Video archives of the meetingare made available on the same day on ourcompany’s Web site. An English translation is
included in the transmission.
Furthermore, we held two onsite tours(domestic and overseas) for analysts andinstitutional investors in the year underreview.

IR meetings

We held more than 500 IR meetings withanalysts and institutional investors in the year
under review. Meetings included overseas
IR road shows, conferences and one-on-one
meetings.

IR materials available
on Web site

Our Web site (IR section) features ﬁnancial
reports, stock information, presentationmaterials, videos and brochures for individual
investors.
http://www.inpex.co.jp/english/ir/

Explanation byrepresentative:
Yes/NoYes

IR meeting for individual investors in Nagoya(held October 2010)

We have appointed the Senior
General Manager, Corporate Strategy& Planning Division, as Corporate
Information Handling Ofﬁcer
responsible for the timely disclosure of
our corporate information. In addition,
we have established Corporate
Communications Unit, as the Unit incharge of practical matters for thetimely disclosure of our corporate
information.
Senior General Manager,
Corporate Strategy & Planning
Division, and the Corporate
Communications Unit conduct
exhaustive compilation of information
for disclosures (information on
decisions made by the Company,
occurrence of material facts, andbusiness results, etc.), and inaccordance with the internal rules, theCorporate Communications Unit inprinciple conducts its disclosure upon
authorization made by the board of
directors and by the management
committee concerning otherinformation. In addition, we maintaincomprehensive control of all importantinternal information and prevent any
insider trading in line with the internal
rules against insider trading.
The following chart shows ourinternal system for timely disclosure of
our company information.

3. Quiet Period
The two weeks prior to theannouncement of business results(including quarterly reports) are
deemed as the “quiet period,” inorder to prevent information leaks
and to maintain disclosure fairness.
During this quiet period, we will refrainfrom commenting on and answeringinquiries related to business results.
However, should it prove necessary
to substantially revise forecasts during
the quiet period, this information will
be appropriately released.

4. IR Activities
Representative directors andresponsible directors as well
as dedicated staff members conductproactive IR activities for investors.
For any questions regarding ﬁnancial
reporting or other IR information,please contact Investor Relations
Group indicated below.

Corporate Responsibility
and Management

Early delivery of
convocation notices forthe general meeting ofshareholders

Internal system for timely disclosure
Board of Directors/Management Committee
Deliberation/report on disclosure details

Yes

Authorization
for disclosure

President
ReportDeliberation/authorizationof urgent information
for disclosure

Corporate Information Handling Officer(Senior General Manager, Corporate Strategy & Planning Division)

Disclosure based on organizational
decision-making(Internal
Audit Unit)

Internal audit(Corporate Communications Unit)

Consultation/Confirmation

Yes

ReportIn charge of timely disclosure
ReportDisclosure

Tokyo Stock
Exchange,
Web Site,
Mass Media, etc.

Divisions/Subsidiaries

Corporate Strategy and Planning Division, Corporate Communications Unit, Investor Relations Group
Tel.: +81-3-5572-0234 IR Web site: http://www.inpex.co.jp/english/ir/
Inquiries via the Internet: http://www.inpex.co.jp/english/ir/inquiries.html
IR Web site

072

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011073

Board of Directors, Auditors and Executive Ofﬁcers(As of June 30, 2011)

ChairmanNaoki Kuroda

Director (Adjunct)

Kazuo Wakasugi

Vice Chairman

Masatoshi Sugioka

Director (Adjunct)Yoshiyuki Kagawa

President & CEO

Toshiaki Kitamura

Director (Adjunct)

Seiji Kato

Director

Seiji Yui

Director (Adjunct)

Shigeo Hirai

Director

Masaharu Sano

Statutory Auditor

Yoshitsugu Takai

Director

Noboru Tezuka

Statutory Auditor

Haruhito Totsune

Director

Shunichiro Sugaya

Statutory Auditor

Koji Sumiya

Masahiro Murayama

Statutory Auditor (Adjunct)

Director

Seiya Ito

Statutory Auditor (Adjunct)

Director

Wataru Tanaka

Director

Takahiko Ikeda

Notes:
1. Directors Kazuo Wakasugi, Yoshiyuki Kagawa, Seiji Kato and Shigeo Hirai are Outside
Directors as stipulated in Article 2, Paragraph 15 of the Companies Act.
2. Statutory Auditors Haruhito Totsune, Koji Sumiya, Hiroshi Sato and Masaru Funai are
Outside Statutory Auditors as stipulated in Article 2, Paragraph 16 of the Companies Act.

Director

Hiroshi Sato

Seiji Yui

Masaharu Sano

Noboru Tezuka

Director,

Director,

Director,

Senior Vice President, Asia & Australasia

Senior Vice President, The Americas & Africa

Senior Vice President, Eurasia & the Middle East,
Abu Dhabi Project

Shunichiro Sugaya

Masahiro Murayama

Seiya Ito

Director,

Director,

Director,

Senior Vice President, Masela Project

Senior Vice President, Finance & Accounting

Senior Vice President, Ichthys Project

Masaru Funai

Naoki Kuroda

Masatoshi Sugioka

Toshiaki Kitamura

ChairmanVice Chairman

President & CEO

Corporate Responsibility
and Management

Directors and Auditors

Chief Technical Executive, HSE and Compliance074

INPEX CORPORATION Annual Report 2011

Wataru Tanaka

Takahiko Ikeda

Director,

Director,

Senior Vice President, General Administration,
Corporate Strategy & Planning

Senior Vice President, Domestic Projects

INPEX CORPORATION Annual Report 2011075

Statutory Auditor

Statutory Auditor

Statutory Auditor

Executive Ofﬁcers

076

Noboru Himata

Seiji Yui*

Takashi Kubo

Masaharu Sano*

Kenji Kawano

Noboru Tezuka*

Yasuhisa Kanehara

Kunio Kanamori

Toshihiko Fukasawa

Shunichiro Sugaya*

Hirohisa Ota

Masahiro Murayama*

Yoshinori Yamamoto

Seiya Ito*

Hajime Kawai

Wataru Tanaka*

Atsushi Sakamoto

Takahiko Ikeda*

Arihiro Kezuka

Sadafumi Tanigawa

Kimiya Hirayama

Kasaburo Tamura

Nobuharu Sase

Akinori Sakamoto

Shigeharu Yajima

Kazuo Yamamoto

Tetsuro Tochikawa

Kazuhiko Itano

Yoshiro Ishii

Shuhei Miyamoto

Toshiya Oshita

INPEX CORPORATION Annual Report 2011

5.1

Five-Year Financial Information

078

5.2

Background Information

079(Oil and Gas Accounting Policies and Treatment)

Toshiaki Kitamura*

Yoshikazu Kurasawa

Financial /Corporate Information*Member of the Board

5.3

Management's Discussion and Analysis of Financial 082
Condition and Results of Operations

5.4

Business Risks

089

5.5

Oil and Gas Reserves and Production Volume

097

5.6

Consolidated Financial Statements /Notes to Consolidated Financial Statements

100

5.7

Report of Independent Auditors

117

5.8

Subsidiaries and Afﬁliates

118

5.9

Oil and Gas Glossary120

5.10 Corporate Information

121

Performance / Message
Business Overview

Koji Sumiya

Project Overview

Haruhito Totsune

Corporate Responsibility
and Management

Yoshitsugu Takai

Financial /Corporate Information

5

Samples of crude oil and condensate

Background Information

Five-Year Financial Information
INPEX CORPORATION and Consolidated Subsidiaries
For the years ended March 31, 2007, 2008, 2009, 2010 and 2011

Oil and Gas Accounting Policies and Treatment
ACCOUNTING METHODS FOR TYPES OF AGREEMENTS

2007

As of or years ended March 31,

2008

2009

2010

2011

(Results of operations)
Net sales:¥ 969,713¥1,202,965¥1,076,165¥ 840,427

Calculation of items in the income statement based on the

consolidated net sales revenues for INPEX CORPORATION

above PSC-related considerations is as follows:¥ 943,080

and its consolidated subsidiaries (the “Group”). Two types of

Crude oil

607,401

783,465

650,352

486,921557,911agreement govern the Group’s oil and gas operations. These• The Group records as net sales its share of total sales

Natural gas

332,937

391,091398,267

326,412356,247are production sharing contracts (the “PSCs”) and concession

relating to the oil and gas production that is allocated to28,922agreement s. The lat ter c ategor y also includes domes tic

Other29,37528,40927,54627,094mining rights, as well as overseas permits, licenses and lease

Cost of sales

343,795

390,554

319,038

298,168

334,833

Gross profit

625,918

812,411757,127542,259

608,247

Exploration expenses

17,68934,09525,982

15,711

12,000

Selling, general and administrative expenses

36,28548,346

50,68344,86944,254

1. Production sharing contracts

agreements.

contractors under the PSCs.
• The Group books as cost of sales the portion of “Recoverable
accounts under produc tion sharing” that is recovered
through the allocation of its share of the “cost recovery
portion.”Depreciation and amortization

12,86715,75917,19520,011

22,250

Produc tion sharing agreements are agreements by which

Recoverable costs under the PSCs

Operating income

559,077

714,211663,267

461,668

529,743

one or several oil and gas development companies serve as

Other income

60,08033,09032,035

21,47331,176

contractors that undertake at their own expense exploration andOther expenses

32,89461,501

79,135

41,114

52,332development work on behalf of the governments of oil-producing

Income before income taxes and minority interests

586,263

685,800

616,167

442,027

508,587

Exploration costs
The share of recoverable exploration costs incurred by theGroup under the terms of the relevant PSC is capitalized within“Recoverable accounts under production sharing.”

Income taxes

413,239491,349

470,378

325,126

368,697

Minority interests
Net income

7,932

21,205726

9,691

11,191

165,092

173,246

145,063

107,210

128,699

countries or national oil companies and receive production fromthe projects as cost recovery and compensation.

Cost recovery and production sharing
The PSCs determine the allocation of oil and natural gas
production among the host country’s government (or related(Financial position)

entity) and the contractors such as the Group. The allocation

Current assets

474,124565,111411,110492,855

492,932

Tangible fixed assets

219,227

254,481

297,636

358,094

379,862

PSC. The overview below is speciﬁc to one type of PSC typical of

Intangible assets

265,822265,481

253,681239,205

249,111many oil and gas projects in Indonesia, a country with which theInvestments and other assets

formula generally differs according to the terms of the individual

648,934

722,828805,618

923,624

1,558,475

1,608,107

1,807,901

1,768,045

2,013,778

2,680,380

Under this type of arrangement, the total production in any

Current liabilities

266,248

325,286

206,059

227,905

254,729

given year or other accounting period is allocated at the end ofLong-term liabilities

261,843

243,802

199,925

295,270

328,268

1,080,016

1,238,813

1,326,061

1,490,603

2,097,383

Total assets

Total net assets(Cash flows)
Cash flows from operating activities

231,982363,995

230,352

241,373274,094

Cash flows from investing activities(209,243)(261,767)(240,168)(251,812)(844,511)

Cash flows from financing activities

13,794(45,228)(46,090)

68,937548,057¥ 189,417¥ 222,270¥ 162,845¥ 216,395¥ 182,025

Cash and cash equivalents at end of the year
(Per share data)
Earnings per share (EPS) (Yen)¥ 70,423.45 ¥ 73,510.14 ¥ 61,601.60 ¥ 45,553.56 ¥ 40,832.40

Net assets per share (Yen)

436,467.92

Cash dividends per share (Yen)¥491,168.09

540,100.10

589,548.88

546,958.90

7,000.00 ¥7,500.00 ¥8,000.00 ¥5,500.00 ¥6,000.00

Net debt / Net total capital employed (%)* 1,2(18.6)%(36.1)%(31.2)%(30.6)%(48.9)%

Equity ratio (%)* 3

64.0

64.0

71.9

68.9

74.5

24.2 %

16.8 %

12.9 %

17.3 %

13.7 %(Financial indicators)

D/E ratio (%)*

4

*1 Net debt = Interest-bearing debt – Cash and cash equivalents – Time deposits – Public bonds and corporate bonds and other debt securities withdeterminable value*2 Net debt / Net total capital employed = Net debt / (Net assets + Net debt)*3 Equity ratio = (Net assets ­ Minority interests) / Total assets*4 D/E ratio = Interest-bearing debt / (Net assets – Minority interests)

078

T he oil and nat ur al gas b usine s s g e ner ate s t he b ulk of

INPEX CORPORATION Annual Report 2011

Group has concluded numerous PSCs.

the period between three portions.

(1) “First tranche petroleum”: This is a prescribed portionof total production allocated between the host country’s
g ove r nm e nt a n d t he co nt r ac to r s i n li ne w i t h ag re e dpercentages.
(2) “Cost recovery portion”: This is the oil and gas equivalentof a) non-capital production-related expenditures incurred inthat period, plus b) the scheduled depreciation expenses inthat period for capital expenditures, as calculated under the
PSC. The equivalents are determined based on the current
unit prices of oil and natural gas and allocated between thecontractors alone. The quantity of oil and gas in the “costrecovery portion” decreases as unit prices increase, whereasthat of the “equity portion” (explained below) rises. If theactual production for the period is insufficient to cover thequantity of oil and gas equivalent calculated for the cost
recovery portion, the latter is capped at actual production
and any surplus amount is carried forward to the following
period, as stipulated in the PSC.

Development costs
The share of all development costs incurred by the Group thatis recoverable under the terms of the relevant PSC is recorded
within “Recoverable accounts under production sharing.”
Production costs
Any operating costs incurred during the production phase thatare recoverable under the relevant PSC are initially recorded
within “Recoverable accounts under production sharing.”
Administrative expenses
Any administrative expenses that are recoverable under the
relevant PSC are recorded within “Recoverable accounts under
production sharing.”
Interest on loans
Any interest expense that is recoverable under the relevant PSC
is recorded within “Recoverable accounts under production
sharing.”
As discussed above, in “Cost recover y and produc tion
sharing,” these costs are recovered either as capital or operating
expenditures.

Non-recoverable costs under the PSCs
Acquisition costs
Costs relating to the acquisition of rights (recorded as intangible
assets under “Exploration and development rights”) for any
projects governed by the PSCs that are entirely in the exploration
phase are expensed as incurred and amortized. Expenditures
or costs relating to the acquisition of rights to projects alreadyin the development or production phase are capitalized within“Exploration and development rights” and amortized based on
the units-of-production method. These amortization costs arerecorded within “Depreciation and amortization.” Cost recovery
provisions in the PSCs do not generally cover these expenditures.

Financial /Corporate Information

Millions of yen(3) “Equity portion”: This is any residual production that is left
after the ﬁrst two portions have been allocated. It is allocatedbetween the host country’s government and the contractors
based on agreed percentages.

INPEX CORPORATION Annual Report 2011079

Exploration costs
The Group’s share of exploration costs is expensed as incurred.

reserve equal to exploration costs is recorded within “Allowance— Provision for exploration projects

for recoverable accounts under production sharing” to provide

A provision for exploration projec ts is provided for future

for potential losses from unsuccessful exploration. This reserve

expenditures of consolidated subsidiaries at the exploration

typically remains unchanged on the balance sheet until it exceeds

stage based on a schedule of investments in exploration. While

the residual balance of exploration costs that had previously

the Group believes that assessments relating to the schedulebeen capitalized within “Recoverable accounts under productionof investments are reasonable, changes to the schedule could

sharing” during the exploration phase. Reﬂecting the uncertainty

signiﬁcantly affect future operating results.

disposition of the oil and gas it extracts. Revenues are returned

Development costs
The Group’s s hare of any develop ment cos t s related tomining facilities is capitalized within tangible fixed assets. The
depreciation of tangible fixed assets that are governed byconcession agreements is computed primarily using the unitsof-production method for mining assets located outside Japanand the straight-line method for domestic facilities. These“Allowance for recoverable accounts under production sharing”

to the host country in the form of royalties, taxes, etc., on sales.

depreciation expenses are recorded within the cost of sales.

— Deferred tax assets

to provide for probable losses on development activities, as

Deferred tax assets reﬂect temporary differences (including net

Production costs
The Group’s share of operating costs that are incurred during the
production phase is recorded within the cost of sales.

individually estimated for each project. While assessments andoperating loss carry-forwards) arising mainly from the write-down

accounting estimates are made on a reasonable basis, actualof investments in related parties, foreign taxes payable andoperating results can change depending on project status.

excess of tax allowable depreciation. Valuation allowances are

A concession agreement is an agreement or authorization(including mining rights awarded in Japan, as well as overseas
permits, licenses and lease agreements) by which a government
entity or a national oil company of the country directly awards
mining rights to an oil company. The oil company makes its own
investment in exploration and development and has the right ofAcquisition costs
Costs relating to the acquisition of rights (recorded as intangible
as s et s und er “Mining r ight s”) for projec t s gover ne d byconcession agreements are treated in the same way as projects
governed by the PSCs, as described above.

Production sharing contracts
Costs

Exploration
costs

Development
costs

Production costs(Operating costs)

Statements ofIncomeProject under
exploration phase

Provision for allowance
for recoverable
accounts under
production sharing

Project underdevelopment andproduction phase
Recoverable
accounts under
production sharing
Project underdevelopment andproduction phase

Acquisition
costs

Concession agreements

Assets on
Balance Sheets

Recoverable
accounts under
production sharing

Exploration anddevelopment
rightsAdministrative expenses
The Group’s share of administrative expenses is expensed as
incurred.

Costs

Exploration
costs

Assets on
Balance Sheets
All exploration costs
are expensed
as incurredStatements ofIncomeExploration
expenses

Cost of sales(Recovery of recoverable
accounts under
production sharing(capital expenditures))

Development
costs

Cost of sales(Recovery of recoverable
accounts under
production sharing(operating expenditures))

Selling, general andadministrative expenses(Depreciation andamortization)
Other expenses(Amortization of
exploration anddevelopment rights)

Production costs(Operating costs)

Acquisition
costs

Tangible fixed
assetsAll production costs
are expensed
as incurred

Mining rights

Cost of sales(Depreciation andamortization)

Cost of sales(Operating expenses)

Cost of sales(Depreciation andamortization)

associated with oil and gas projects, a reserve is recorded withinprovided once it is judged that the non-realization of deferred— Units-of-production method

tax assets has become the more probable outcome. The effectOverseas mining facilities, mining rights and exploration andof foreign tax credits is taken into account in the calculation ofdevelopment rights that are acquired during the development

such valuation allowances. Realization of deferred tax assets isand production phase are mainly depreciated or amortizedprincipally dependent on the generation of sufficient taxable

based on the units-of-produc tion method. This approach

income, based on the available information. Adjustments torequires the estimation of reserves. While the Group believesdeferred tax assets could be required if future taxable incomethat the assessment of reser ves is done in an appropriate

was lower than expected due to market conditions, foreignmanner, any changes in these estimates could signiﬁcantly affectexchange rate ﬂuctuations or poor operating performance.

future operating results.

— Retirement beneﬁts to employees— Asset retirement obligations

Accrued retirement benefits to employees are recognized as

Asset retirement obligations are recorded by a reasonableof the net present value of future obligations as of the end of

estimate of retirement costs incurred upon termination of thethe accounting period, taking into account any periodic beneﬁt

operation with respect to oil and gas production facilities in casecosts that have arisen during the period. The determinationthat the Group is obliged to retire such facilities by oil and gasof retirement benefits and periodic benefit costs is based oncontracts or laws and regulations with the countries in which

various actuarial assumptions, including the discount rate,

the Group operates or has working interests. While the Group

employee turnover and retirement rates, remuneration growth

believes that such estimates of the present value of retirement

rates, and the expected return on pension plan assets. Future

costs are reasonable, changes to estimates of the present value

operating results could be significantly affected by deviationof retirement costs could significantly affect future operating

between the base assumptions and actual results or revision of

results.

such assumptions were to generate actuarial gains or losses.

— Allowance for investments in exploration companies
A reser ve is recorded to provide for probable los ses oninvestments made by the Group in entities engaged in oil and

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

gas activities, as estimated based on the net assets of such
entities. While the Group believes that the assessments andestimates relating to such investments are reasonable, changes

The Group’s consolidated financial statements are preparedrational changes to such estimates could exert a material impact

in actual production volumes, prices or foreign exchange rates

in conformity with Japanese GAAP. The preparation of theseon financial condition or operating results. Critical accounting

could signiﬁcantly affect future operating results.

financial statements requires the application of estimates,

policies and estimates relating to financial presentation are

judgments and assumptions that affect the reported values ofoutlined below.

— Goodwill
The excess cost over underlying net assets excluding minority
interests as fair value as of their dates of acquisition is accounted
for as goodwill and amortized over 20 years on a straight-line
method.

Financial /Corporate Information

2. Concession agreements

assets and liabilities at the date of the financial statements, aswell as the reported amounts of revenues and expenses for the080

reporting period. Actual results may differ from the previously— Allowance for recoverable accounts under
production sharing

estimated or assumed values.

Any expenditures made during the exploration, development

Accounting estimates pursuant to the preparation of theand production phases of projects governed by the PSCs areconsolidated financial statements are deemed critical if thecapitalized within “Recoverable accounts under production

degree of uncertainty associated with such estimates is high, or if

sharing” if they are recoverable under the relevant PSC. A

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011081

Management’s Discussion and Analysis of Financial
Condition and Results of Operations(Millions of yen, %)BUSINESS ENVIRONMENT
Years ended March 31,

that significantly af fec ts the Group businesses, star ted at
an exchange rate of ¥93 level against the U.S. dollar at the
beginning of the year, with the yen continuing to appreciate.
Under increasing hesitancy in U.S. economic indicators from June
2010, the Federal Open Market Committee (FOMC) released
a statement that the U.S. economy was in a recession and theFederal Reserve Chairman Ben Bernanke warned that the U.S.
economic outlook remains “unusually uncertain.” This economic
situation resulted in the increasing expectation on market ofmonetary easing, leading both U.S. long- and short-term interest
rates to lower and the yen to trend upward against the U.S.
dollar. In late October 2010, the exchange rate had exceeded¥81 against the U.S. dollar, despite Bank of Japan intervention in
September 2010. Once the FOMC announced a second roundof quantitative easing in November 2010, excessive market
expectations for further monetary easing were reduced andcaused a lull in yen appreciation. After the Great East Japan
Earthquake in March 2011, however, the yen sharply appreciated,as the dollar plunged to a postwar record low of ¥76.25 on
speculation that Japanese companies would sell foreign assets toraise capital. The yen returned to the ¥80 level to the U.S. dollar
level after joint G-7 intervention, with the TTM closing at ¥83.15
against the U.S. dollar, ¥9.89 higher than that at the close of theprevious year ended March 31, 2010. As a result, the average
yen exchange rate for the Group’s sales appreciated to ¥85.66
against the U.S. dollar, a gain of ¥6.98, or 7.5% compared withthe previous year.

PERFORMANCE OVERVIEW
Net sales
Despite a decrease in natural gas sales volumes and the pressure
on sales caused by the appreciation of the average exchange rateof the yen against the U.S. dollar during the year, consolidated
net sales for the year ended March 31, 2011 increased ¥102.7
billion or 12.2% to ¥943.1 billion, from ¥840.4 billion for theyear ended March 31, 2010, due to the rise in oil and gas prices.
Compared with the previous year, net sales of crude oil increased¥71.0 billion, or 14.6%, to ¥557.9 billion from ¥486.9 billion, andnet sales of natural gas increased ¥29.8 billion, or 9.1%, to ¥356.2
billion from ¥326.4 billion. Net sales excluding crude oil andnatural gas increased ¥1.8 billion, or 6.7%, to ¥28.9 billion from¥27.1 billion.
Crude oil sales volume increased 556 thousand barrels or
0.7% to 76,651 thousand barrels compared with the previous
year. This increase was mainly due to the commencement of
production in the Van Gogh ﬁeld, in spite of a decrease in sales
volumes from the ACG oil fields. Sales volumes of natural gas
decreased 18 billion cubic feet (Bcf), or 4.2%, to 401 Bcf. Of this,sales of overseas natural gas declined 18 Bcf, or 5.1%, to 337
Bcf, mainly due to a decrease in the volume of sales from the
Offshore Mahakam Block. Sales of domestic natural gas rose
15 million m3, or 0.9%, to 1,722 million m3 (equivalent to 64 Bcf).
The average sales price of crude oil produced overseas was
US$84.34/bbl, an increase of US$15.94, or 23.3%, compared withthe previous year. The average sales price of overseas natural082

INPEX CORPORATION Annual Report 2011

gas was US$9.10 per thousand cubic feet (Mcf), an increase of
US$1.67, or 22.5% compared with the previous year. The averagesales price of natural gas produced in Japan was ¥41.73/m3, an
increase of ¥4.68/m3, or 12.6% compared with the previous year.
An analysis of the factors contributing to the year-on-yearincrease of ¥102.7 billion in net sales shows that the decrease insales volumes caused a reduction of ¥7.8 billion, with the rise inaverage unit prices contributing ¥177.1 billion to the increase,the stronger yen pushing sales down of ¥68.4 billion, and theincrease in net sales excluding crude oil and natural gas of ¥1.8
billion.

Net sales■Other sales■Natural gas sales■Crude oil sales(¥million)
1,500,000

Net sales:
Crude oil
Natural gas
Other
Cost of sales
Gross profit
Exploration expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating income
Other income:Interest income
Dividend income
Equity in earnings of affiliates
Gain on change in equity
Gain on transfer of mining rights
Other
Other expenses:
Interest expense
Equity in losses of affiliates
Provision for allowance for doubtful accounts
Provision for allowance for recoverable accounts under production sharing
Provision for exploration projects
Provision for investments in exploration
Loss on adjustment for changes of accounting standard for asset retirement
obligations
Foreign exchange loss
Other
Income before income taxes and minority interests
Income taxes
Income before minority interests
Minority interests
Net income

2011

ChangeRatio¥840,427
486,921326,41227,094
298,168
542,259
15,711
44,86920,011
461,668
21,473
4,354
9,476
—
—
—
7,643
41,114
1,275
1,920
—
6,028
8,595
5,408

¥943,080
557,911356,247
28,922334,833
608,247
12,00044,254
22,250529,743
31,176
4,110
5,722
4,934
3,644
7,334
5,432
52,332
1,074
—
9,133
11,481
3,082—¥102,653
70,99029,835
1,828
36,66565,988(3,711)(615)
2,239
68,075
9,703(244)(3,754)
4,934
3,644
7,334
(2,211)
11,218(201)(1,920)9,133
5,453(5,513)(5,408)

12.2%
14.6
9.1
6.7
12.3
12.2
(23.6)
(1.4)
11.2
14.7
45.2
(5.6)
(39.6)———(28.9)
27.3(15.8)(100.0)—90.5(64.1)(100.0)

—

1,555

1,555

—

13,2644,624
442,027
325,126—
9,691¥107,210

11,54014,467
508,587368,697
139,890
11,191¥128,699(1,724)
9,843
66,56043,571—
1,500¥21,489(13.0)
212.9
15.1
13.4
—
15.5
20.0%

Cost of sales

Exploration expenses

The cost of sales for the year ended March 31, 2011 increased¥36.6 billion, or 12.3%, to ¥334.8 billion from ¥298.2 billion in theprevious ﬁscal year. This was mainly due to an increase in the net
purchase of natural gas in Japan and an increase in depreciation
owing to the commencement of production in the Van Goghﬁeld.

E xploration expenses for the year ended March 31, 2011
decreased ¥3.7 billion, or 23.6%, to ¥12.0 billion from ¥15.7
billion in the previous fiscal year, as exploration ac tivities
decreased in regions other than the Americas (especially Brazil).

Selling, general and administrative expenses
Selling, general and administrative expenses decreased ¥0.6
billion, or 1.4%, to ¥44.3 billion for the year ended March 31,

Cost of sales

Operating income(¥million)(¥million)

500,000

800,000

Financial /Corporate Information

W hile the Japanese economy was headed toward a selfsustaining recovery during the year ended March 31, 2011, withimprovements in business earnings and a capital spending andsteady export performance, the recovery was hindered in the
middle of the year due to a slow-down of the export growthand other factors. Moreover, the Great East Japan Earthquake
in March 2011 triggered further concerns about the economic
prospect. Amid this business environment, the global crude oil
price that signiﬁcantly affects the Group's businesses, measured
by the closing price of WTI delivery, an important indicator for
crude oil price, started from US$84.87/bbl in the year. Although
the price had dropped below US$70/bbl at the end of May 2010
due to credit uncertainty in Europe triggered by the financial
crisis in Greece, the prices turned into upward since then. Pricesrose from summer 2010 to US$90/bbl around due to increasingin oil supply uncertainty caused by hurricane on the U.S. coastand strengthening of U.S. economic indicators. After the turnof the year, prices continued to rise due to growing tensions inNorth Africa and the Middle East from mid-February 2011, which
results in exceeding US$100/bbl in early March and closing at
US$106.72/bbl at the end of the year. Meanwhile, domestic crude
oil and petroleum products prices followed a pattern similar to
global oil price movements. Reﬂecting this situation, our Group’s
average crude oil selling price for the year ended March 31, 2011
was US$84.34/bbl, which was US$15.94 higher than that for theprevious year.
The foreign exchange market, another important factor

2010

714,2111,202,965

1,200,000

1,076,165

600,000

343,795

969,713

943,080

900,000

840,427

663,267

390,554400,000

319,038

300,000

334,833

559,077

529,743

298,168

461,668
400,000

600,000

200,000

300,000

100,000

200,000

0

0

0

2007

2008

2009

2010

2011

2007

2008

2009

2010

2011

2007

2008

2009

2010

2011

INPEX CORPORATION Annual Report 2011083

Depreciation and amortization
Depreciation and amortization increased ¥2.3 billion, or 11.2%,
to ¥22.3 billion for the year ended March 31, 2011, from ¥20.0
billion in the previous year. This increase was mainly due to anincrease in the depreciation of exploration and development
rights for the ACG oil ﬁelds, as well as increased depreciation in
relation to domestic pipelines. The Group records depreciation
costs for production facilities that are covered by concessionagreements as the cost of sales. In addition, under its accounting
treatment of the PSCs, the Group records capital expenditures
as “Recoverable accounts under production sharing” insteadof capitalizing these costs within tangible fixed assets anddepreciating them. Costs that are recovered in any given year
based on the terms of the PSCs are included in the cost of sales.

Other expenses
Other expenses for the year ended March 31, 2011 increased¥11.2 billion, or 27.3%, to ¥52.3 billion from ¥41.1 billion in
the previous year. This was mainly due to an increase in theprovision for allowance for doubtful accounts pertaining to thewithdrawal from the Azadegan oil ﬁeld in Iran and the provision
for allowance for recoverable accounts under production sharing.

Income taxes
Total current income taxes and deferred income taxes in theyear ended March 31, 2011 increased ¥43.6 billion, or 13.4%, to¥368.7 billion from ¥325.1 billion in the previous year. This was
mainly attributable to the increase in taxes paid overseas dueto the rise in overseas sales. The Group pays the majority of its
taxes outside Japan. In addition to the high corporate tax rates
imposed in a number of regions, the Group is generally unable
to deduct expenses incurred in Japan for such taxes. Despite
the positive effects attributable to the application of the foreign
tax credit system, this situation has resulted in a high effective
income tax rate of 72.5% in the year under review.

Operating income

Minority interests

As a result of the above, operating income in the year ended
March 31, 2011 increased ¥68.0 billion, or 14.7%, to ¥529.7 billion
from ¥461.7 billion in the previous year.

Minority interests in the year ended March 31, 2011 increased¥1.5 billion, or 15.5%, to ¥11.2 billion from ¥9.7 billion in theprevious year.

Other income

Net income

Other income for the year ended March 31, 2011 increased ¥9.7
billion, or 45.2%, to ¥31.2 billion from ¥21.5 billion in the previous
year. This increase was mainly attributable to gain on transfer ofmining rights and an increase in equity in earnings of afﬁliates.

As a result of the above, net income for the year ended March
31, 2011 increased ¥21.5 billion, or 20.0%, to ¥128.7 billion from¥107.2 billion in the previous year.

FINANCIAL POSITION
Total assets as of March 31, 2011 increased ¥666.6 billion, or
33.1%, to ¥2,680.4 billion, from ¥2,013.8 billion as of March
31, 2010. Current assets remained flat at ¥492.9 billion due toa decrease in cash and cash equivalents and others, despite

an increase in accounts receivable—trade and others. Fixed
assets increased ¥666.5 billion, or 43.8% to ¥2,187.4 billion from
¥1,520.9 billion as of March 31, 2010, mainly due to an increase
in investment securities, tangible fixed assets and recoverable

accounts under production sharing.
Meanwhile, total liabilities as of March 31, 2011 increased¥59.8 billion or 11.4% to ¥583.0 billion from ¥523.2 billion asof March 31, 2010. Current liabilities increased ¥26.8 billion, or
11.8%, to ¥254.7 billion from ¥227.9 billion as of March 31, 2010,
due to an increase in income taxes payable and asset retirement
obligations. Long-term liabilities increased ¥33.0 billion, or
11.2%, to ¥328.3 billion from ¥295.3 billion due to an increase inlong-term debt and others.
Net assets increased ¥606.8 billion, or 40.7%, to ¥2,097.4

INVESTMENTS AND FUNDING

Net income

Total assets(¥million)

200,000

3,000,000

165,092

2,680,380

173,2462,500,000

145,063150,000

128,699

2,013,778

2,000,000

1,807,901
1,608,107

107,210

1,768,045

1,500,000

100,000

1,000,000
50,000500,000

Continuous exploration for new reserves of oil and natural gas
is essential to the Group’s earnings stability. The information inthis section on upstream oil and gas investments is based on
the data reported by project operators relating to exploration
ex penditures, development ex penditures and oper ating
expenses. The Group’s expenditure categories are defined asfollows:• Exploration expenditures include the costs of exploratory
drilling and any geological or geophysical studies. The
costs of local personnel and ofﬁce operations and related
administrative expenses are also included in this category if
a project (or contract area) is in the exploration phase.
• Development expenditures include the costs ofdevelopment drilling and any production facilities.
• Other expenditures include the costs of construc tingpipelines for domestic natural gas and Naoet su LNG
receiving terminal.
• Operating expenses include the costs of well operations,maintenance and the supervision of production activities.
This category also includes the administrative expenses forthe project (or contract area) if it contains a ﬁeld in active
production and/or development.

The table below shows the Group‘s exploration and development costs and other expenditures (excluding capitalized interests costs)
by segment for the years ended March 31, 2010 and 2011:(Millions of yen)Japan

INPEX CORPORATION and Consolidated Subsidiaries
Exploration¥ 2,997
Development
4,572
Subtotal*
7,569
Other expenditures
46,678
Total
54,247
Equity-method Affiliates
Exploration—
Development
—
Total
¥
—

Eurasia(Europe & NIS)

Middle East &AfricaAmericas¥ 19,386
108,276
127,66218
127,680¥ 2,032
66,042
68,074—68,074¥ 6,379
18,56324,942
1
24,943¥2,201
4,582
6,783
—
6,783

¥ 32,995
202,035
235,030
46,697281,727

—
1,219
1,219

—
—
—

481
1,422
¥ 1,903—
4,350¥4,350

481
6,991
7,472

Asia & Oceania

¥

¥

Total

¥

* Figures include equity-method affiliate of Japan Oil Development Co., Ltd. (JODCO).

0

0

2007

084

• Discrepancies exist between the standards stipulated in
U.S. FASB Accounting Standards Codification Topic 932,
“Extractive Industries—Oil and Gas (Topic 932)” and boththe Group’s definitions of exploration and development
expenditures and the standards used in preparing thefollowing tables. The following is a list, which is not limited
to, of discrepancies bet ween the Group’s accounting
policies and Topic 932.
- Group expenditures relating to the PSC-governed joint
ventures where the Group is not the operator are disclosed
on a cash basis, rather than an accrual basis as required by
Topic 932.
- The tables below have been prepared based on the costdeﬁnitions used by operators in their reporting, which may
not be consistent with Topic 932.
- Topic 932 requires that administrative costs not directly
related to exploration and development ac tivities be
excluded from exploration and development expenditures,
while such administrative costs are not necessarily excluded
from those expenditures under the Group’s accounting
policies.

— Investments in upstream oil and gas projects

Year ended March 31, 2010(¥million)

billion as of March 31, 2011 from ¥1,490.6 billion as of March
31, 2010. Total shareholders’ equity increased ¥632.3 billion,or 45.8%, to ¥2,012.3 billion from ¥1,380.0 billion as of March
31, 2010, as common stock increased ¥260.8 billion and thecapital surplus increased ¥260.8 billion due to the issuance of
new shares. Total accumulated other comprehensive income
decreased ¥22.9 billion from March 31, 2010, to a loss of ¥15.4
billion from ¥7.5 billion, and minority interests decreased ¥2.6
billion, or 2.5%, to ¥100.5 billion as of March 31, 2011, from¥103.1 billion as of March 31, 2010.

Financial /Corporate Information

2011, from ¥44.9 billion in the previous year. This was due to adecrease in transport costs for ACG crude oil associated with adecrease in the sales volume, despite an increase in taxes leviedby East Timor in connection with the Bayu-Undan Project asincreased the oil price.

2008

2009

INPEX CORPORATION Annual Report 2011

2010

2011

2007

2008

2009

2010

2011

INPEX CORPORATION Annual Report 2011085

(Millions of yen)

Year ended March 31, 2011

Japan

Eurasia
Asia & Oceania(Europe & NIS)INPEX CORPORATION and Consolidated Subsidiaries
Exploration¥ 727
Development
3,741
Subtotal*
4,468
Other expenditures
21,225
Total
25,693Equity-method Affiliates
Exploration—
Development
—
Total
¥
—

Middle East &AfricaAmericasTotal¥ 18,847
97,080115,927—
115,927¥ 517
64,10864,625—64,625¥ 3,965
19,83023,795923,804¥ 8,474
2,270
10,744—
10,744¥ 32,530
187,029
219,559
21,234
240,793

—
385
385

—
—
—

355
650
¥ 1,005296
2,068¥ 2,364

651
3,103
3,754

¥

¥

¥

* Figures include equity-method affiliate of Japan Oil Development Co., Ltd. (JODCO).

Total expenditures for the year ended March 31, 2011 amounted to ¥240.8 billion. This represented a year-on-year decrease of ¥40.9
billion, or 14.5%, compared with the ¥281.7 billion in the previous year. This was mainly due to the decline in development expenditures
relating to the South Natuna Sea Block B and the Offshore Mahakam Block in the Asia and Oceania region, as well as a decrease ofother expenditures in the Japan region.
The table below shows the Group‘s operating expenses by segment for the years ended March 31, 2010 and 2011:(Millions of yen, %)Years ended March 31,

Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Total

2010
¥ 9,324
48,888
7,099
21,192
5,189¥91,692

2011
10.2%
53.3
7.7
23.1
5.7
100.0%¥ 8,534
44,911
4,409
20,084
3,332¥81,270

10.5%
55.3
5.4
24.7
4.1
100.0%— Analysis of recoverable accounts under production sharing
For upstream projects governed by the PSCs, the Group’s share of costs arising during the exploration, development and production
phases is capitalized under “Recoverable accounts under production sharing.” The following table shows the changes in the balance of“Recoverable accounts under production sharing” during the years ended March 31, 2010 and 2011:(Millions of yen)

Years ended March 31,

Balance at beginning of the year
Add: Exploration costs
Development costs
Operating expenses
Other
Less: Cost recovery—capital expenditures
Cost recovery—operating expenditures
Other
Balance at end of the year
Allowance for recoverable accounts under production sharing at end of the year

The table below shows the Group‘s expenditures for acquisitions of upstream oil and gas projects by segment for the years ended
March 31, 2010 and 2011. Expenditures in this category include the costs of acquiring mining rights, exploration and development
rights, signing bonuses and any tangible ﬁxed assets or recoverable accounts under production sharing gained through the acquisitionof interest in upstream oil and gas projects.

2011¥514,646
23,990120,997
43,8192,820
50,817
95,66525,459534,331¥ (96,880)

The amount posted as “cost recovery—operating expenditures”

decreased compared with the previous year due to the decrease

in recoverable accounts under production sharing is greaterin operating expenses for the Offshore Mahakam Block.

than that posted as operating expenses. Along with operating

Cost recovery for the year ended March 31, 2011, decreased

expenses, this is because a por tion of the exploration andcompared with the previous year. This was mainly due to thedevelopment cos t s, which are incur red and recover able

decrease in cost recovery in the the South Natuna Sea Block B.

within the year, is included in the “cost recovery—operating
expenditures” account.
E xploration cos t s for the year ended March 31, 2011,
increased compared with the previous year. This was mainly due
to the increase in exploration expenditures in Indonesia.

— Expenditures for acquisitions of upstream oil and gas projects

2010¥453,922
10,085
146,02854,9382,671
45,653
107,075270
514,646¥ (94,892)

In addition, other deductions to recoverable accounts under
production sharing were due to the elimination of recoverable
accounts related to block withdrawal.
The allowance for recoverable accounts under production
sharing as of the end of the year ended March 31, 2011, wasDevelopment costs for the year ended March 31, 2011,higher than the allowance as of the end of the previous fiscal

decreased compared with the previous year. This was mainly

year. This was largely due to additional allowance provisions

due to the decreases in development expenditures in the Southin connection with the increase in recoverable accounts underNatuna Sea Block B and the Offshore Mahakam Block, despite

production sharing with respect to exploration expenditures in

an increase in those for the ACG oil ﬁelds.

Indonesia.

Operating expenses for the year ended March 31, 2011,(Millions of yen, %)INPEX CORPORATION and Consolidated Subsidiaries
Asia & Oceania¥292
Eurasia (Europe & NIS)—
Middle East & Africa
384
Americas
15
Total
691
Equity-method Affiliates—
Asia & Oceania
Middle East & Africa——
Americas
¥ —
Total

2010

2011
42.2%
—
55.6
2.2
100.0
—
—
—
—%

¥
—
28,446——28,446¥————— Funding sources and liquidity
—%
100.0
—
—
100.0
—
—
—
—%

Total expenditures on acquisitions of upstream oil and gas projects in the year ended March 31, 2011 increased ¥27.7 billion to ¥28.4
billion, from ¥0.7 billion in the previous year due to increase in outlays in the Eurasia region.

086

INPEX CORPORATION Annual Report 2011

Oil and natural gas exploration and development projects asbanks provide loans for the construction and expansion ofwell as the construction and expansion of domestic pipelines,

domestic pipelines and LNG receiving terminals; ¥520.0 billion

LNG receiving terminals and other supply infrastructure, require

was raised through an equity offering conducted for the year

signiﬁcant funding. The Group relies on cash ﬂow derived fromended March 31, 2011. We are also looking into funding theinternal reserves, together with external sources, to procure

Ichthys Project through project ﬁnance.

funds. The Group’s basic policy is to utilize internal cash ﬂow and

The Group’s basic liquidity policy is to maintain sufﬁcient cash

external equity financing to fund exploration projects and toon hand at all times to fund expenditures for existing and new oilutilize internal cash ﬂow and external loans to fund development

and natural gas projects in a timely manner, while also keeping a

projects, pipeline construction and the LNG receiving terminal.

cushion of liquidity to provide for steep falls in oil and gas prices.

The Group currently receives joint ﬁnancing from the Japan Bank

In line with this policy, excess cash reserves are invested in low-for International Cooperation and Japanese commercial banks.

risk, highly liquid ﬁnancial instruments. The Group’s strategy is to

The Japan Oil, Gas and Metals National Corporation (JOGMEC)

improve capital efﬁciency over the long term through businessguarantee system covers this joint financing. In addition, theexpansion while continuing to maintain a sound ﬁnancial position

Development Bank of Japan and various Japanese commercial

with sufﬁcient liquidity.

INPEX CORPORATION Annual Report 2011

Financial /Corporate Information

Years ended March 31,087

Business Risks

The following is a discussion on key items that can be considered potential risk factors relating to the business of INPEX— Maturities of long-term debt

CORPORATION and its consolidated subsidiaries (the “Group”). From the standpoint of information disclosure to investors and

The aggregate annual maturities of long-term debt subsequent to March 31, 2011 are summarized as follows:

shareholders, we proactively disclose matters that are not necessarily the business risks but that can be considered to have important
effects on the investment decisions of investors. The following discussion does not completely cover all business risks relating to the(Millions of U.S. dollars and yen)Group’s business.

Years ending March 31,

2012
2013
2014
2015
2016
2017 and thereafter
Total

U.S. dollars

$

—
—
—
—
—
2,286.8$2,286.8

Yen

Total yen equivalent¥ 4,281
4,662
3,757
5,609
5,128
59,405¥82,842

¥

4,281
4,662
3,757
5,609
5,128
249,550¥272,987— Cash ﬂows
Cash ﬂows for the years ended March 31, 2010 and 2011 are summarized as follows:(Millions of yen)

Years ended March 31,

Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Cash and cash equivalents at end of the year

Net cash provided by operating activities
Net cash provided by operating activities in the year ended
March 31, 2011, totaled ¥274.1 billion, an increase of ¥32.7 billion
from the ﬁgure for the previous year of ¥241.4 billion. This wasdue to the increase in net income before income taxes andminority interests caused by the rise in the unit prices for crude
oil and natural gas.

2010
¥ 241,373(251,812)
68,937¥ 216,395

2011¥ 274,094(844,511)
548,057¥ 182,025

decrease in investment in recoverable accounts under production
sharing (capital expenditures).

Net cash provided by ﬁnancing activities
Net cash provided by financing activities in the year ended
March 31, 2011, was ¥548.1 billion, an increase of ¥479.2 billion
from ¥68.9 billion posted for the previous year. This primarily
reﬂects proceeds from issuance of common stock.

Net cash used in investing activities
Net cash used in investing activities in the year ended March
31, 2011 increased ¥592.7 billion to ¥844.5 billion from ¥251.8
billion in the previous year. This was mainly due to an increasein payments for purchases of investment securities despite a

CONSOLIDATED FINANCIAL FORECASTS FOR THE YEARENDING MARCH 2012 (Announced on August 3, 2011)
Consolidated net sales for the year ending March 31, 2012,
are forecast to increase ¥114.9 billion, or 12.2%, to ¥1,058.0
billion. Operating income for the year is expected to increase¥67.3 billion, or 12.7%, to ¥597.0 billion with net income before
corporate income taxes and minority interests forecast to
rise ¥76.4 billion, or 15.0%, to ¥585.0 billion. Net income isanticipated to rise ¥11.3 billion, or 8.8%, to ¥140.0 billion.
Net sales are expected to grow as expected oil price to behigher than the previous year. Accordingly, operating income,income before income taxes and minority interests, and net
income are also expected to increase.
The aforementioned forecasts are based on an average oil
price of US$100.5/bbl for the Brent crude benchmark and an
average exchange rate of ¥80.4 against the U.S. dollar for theyear ending March 31, 2012.

Unless stated otherwise, forward-looking statements in the discussion are the judgment of the Group as of June 29, 2011 and are
subject to change after such date due to various factors, including changes in social and economic circumstances.

1. CHARACTERISTICS OF AND RISKS ASSOCIATED WITH THE
OIL AND GAS DEVELOPMENT BUSINESS(1) Risk of failure in exploration, development or
production
Payment of compensation is ordinarily necessary to acquire
blocks and acreages. Also, surveying and exploratory drilling
expenses (exploration expenses) become necessar y at thetime of exploration activities for the purpose of discoveringresources. When resources are discovered, it is necessary tofurther invest in substantial development expenses according tovarious conditions, including the size of the recoverable reserves,development costs and details of agreements with oil-producing
countries (including gas-producing countries; hereinafter thesame shall apply).
There is, however, no guarantee of discovering resources
on a scale that makes development and production feasible.
The probability of such discoveries is considerably low despite
various technological advances in recent years, and even whenresources are discovered the scale of the reserves does notnecessarily make commercial produc tion feasible. For thisreason, the Group conservatively recognizes expenses related
to exploration investment, maintaining financial soundness bybooking 100% as expenses in consolidated ﬁnancial statementsin the case of concession agreements (including mining rights
awarded in Japan as well as permits, licenses and leases awarded
overseas) and by booking 100% of exploration project investment
as allowances in the case of production sharing agreements. In
addition, if there are impossibilities of recovery of development
investment in a project, we also book the corresponding amountof development expenses as allowances in accordance with thecircumstances of each project.
To increase recoverable reserve and production volumes,
the Group always takes interest in promising properties andplans to continue exploration investment. At the same time,
we invest in development projects, including the acquisitionof interests in discovered undeveloped fields and producing
ﬁelds, so as to maintain an overall balance between assets at the
exploration, development, and production stages.
Although exploration and development (including theacquisition of interests) are necessary to secure the reserves
essential to the Group’s future sustainable business development,each type of investment involves technological and economic
risks, and failed exploration or development investment could
have an adverse effect on the results of the Group’s operations.

(2) Oil, condensate, LPG and natural gas reserves
1) Proved reserves
INPE X CO R P O R AT I O N (t h e “C o m p a ny ” ) c o m mi s s i o n e d

088

INPEX CORPORATION Annual Report 2011

DeGolyer and MacNaughton, an independent petroleum
engineering consultant in the United States, to assess the proved
reserves of the Group of which projects with a signiﬁcant amountof future development investment might materially affect future
performance. An assessment of other projects was undertakenby the Company. The definition of proved reserves is basedon the U.S. Securities and Exchange Commission’s Regulation
S-X, Rule 4-10(a), which is widely known among U.S. investors.
Notwithstanding the use in evaluation of either the deterministic
or probabilistic approaches, proved oil and gas reserves are
estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable fromknown reser voirs under existing economic and operating
conditions, from the date of evaluation through to the expiration
date of the agreement granting operating rights (or in the eventof evidence with a reasonable certainty of agreement extension
through to the expiration of the projected extension period).
For definition as “proved reser ves,” operators must have areasonable degree of certainty that the recovery of hydrocarbons
has commenced or that the project will commence within an
acceptable period of time. This deﬁnition is widely regarded as
being conservative. Nevertheless, the strictness of the deﬁnition
does not imply any guarantee of the production of total reserves
during a future production period.
For f ur t her det ails on proved reser ves of cr ude oil,condensate, LPG and natural gas held by the Group, including
afﬁliates accounted for under the equity method, please see thesection “Oil and Gas Reserves and Production Volume” on P. 97.

2) Probable reserves and possible reserves
In addition to the assessment of proved reser ves based on
the SEC standards, the Company commissioned DeGolyer
and MacNaughton to assess its probable reser ves and thepossible reserves of which projects with a significant amountof future development investment might materially af fec t
the future per formance. An assessment of other projec t s
was under taken by the Company. based on the Petroleum
Resources Management System 2007 (PRMS) published by fourorganizations: the Society of Petroleum Engineers (SPE), theWorld Petroleum Congress (WPC), the American Associationof Petroleum Geologists (AAPG), and the Society of Petroleum
Evaluation Engineers (SPEE). Probable reserves, as defined by
the four organizations, are reserves outside proved reserves thatare less likely to be recovered than proved reserves but morecertain to be recovered than possible reserves based on analysesof geological and engineering data. In this context, when

INPEX CORPORATION Annual Report 2011

Financial /Corporate Information

Long-term debt denominated in

089

3) Possibility of changes in reserves
A reserve evaluation depends on the available geological andengineering data from oil and gas reservoirs, the maturity ofdevelopment plans and a considerable number of assumptions,factors and variables including economic conditions as of thedate such an estimate is made. Reserves may be revised in the
future on the basis of geological and engineering data as well
as development plans and information relating to changes in
economic and other conditions made newly available throughprogress in production and operations. As a result, there is apossibility that reserves will be restated upwards or downwards.
As to the reserves under a PSC, not only production, but also
oil and gas prices, investments and cost recoveries as well as
remuneration fees may affect the economic entitlement. Thismay cause reserves to increase or decrease. In this way, reserves
could fluc tuate because of various data, assumptions andchanges of deﬁnition.

(3) In the oil and natural gas development businessthe period from exploration to sales is highly capitalintensive and funds cannot be recovered for a longtime
Considerable time and expense is required for explorationac tivities. Even when promising resources are discovered
through exploration, substantial expenses including production
facility construction costs, and an extended period of time, arenecessary at the development stage leading up to production.
For this reason, a long period of 10 years or more is required
from the time of exploration and development investment
until the recovery of funds through production and sales. In
particular, the development of the Ichthys and the Abadi, large-

090

INPEX CORPORATION Annual Report 2011

scale LNG projects, being pursued by the Company requiresa very large amount of investment, and the financing of theseprojects could be impacted by changes in the economic andfinancial environment. Following the discovery of resources,in the development process leading up to production and thecommencement of sales, the occurrence of events such as adelay in the acquisition of government approvals or a delay in thedevelopment schedule or the loss of the economic viability of theproperties due to factors such as unanticipated problems related
to geological conditions or ﬂuctuations in the price of oil or gas,fluctuations in foreign exchange rates, or other changes in thebusiness environment, including escalating prices of equipment
and materials, or in the case of LNG projects, an inability tocomplete such procedural requirements as FID owing to thelack of any long-term contractual agreement with prospective
purchases with respect to production, could have an adverse
affect on the Group’s operational results.

(4) Operatorship
In the oil and gas development business, companies frequently
form business partnerships for the purpose of the dispersionof risk and financial burden. In such partnerships, one of thecompanies becomes the operator, which performs the actual
work and bears the responsibility for operations on behalfof the partners. The companies other than the operator, as
non-operators, par ticipate in the business by providing apredetermined amount of funds and either carefully examining
the exploration and development plan devised and implemented
by the operator, or participating in some operations.
The integration of INPEX CORPORATION and Teikoku OilCo., Ltd., was completed on October 1, 2008. The resultant
company possesses abundant operational capabilities thanks
to the amalgamation of the former two companies’ extensive
experience and know-how in exploration, development andproduction both within Japan and overseas as well as their highlevel proprietary technologies.
The Group intends to actively pursue operator projects
focusing on the two large-scale LNG Ichthys and Abadi projects
taking into consideration the effective application of businessresources as well as the balance between operator and nonoperator projects, based on the Group’s technical capability,
which has been considerably enhanced by the above-statedbusiness integration. Although the Company lacks operator
experience in LNG development projects, it has significant
expertise as an operator in the development and productionof crude oil and natural gas both in Japan and overseas as well
as a wealth of know-how and knowledge accumulated overmany years as a participant in LNG and other projects in suchcountries as Indonesia and Australia. In addition, we believe thatby utilizing the services of specialized subcontractors and highly
experienced external consultants, a practice similar to foreign
oil companies including the majors, it will be possible to executebusiness appropriately as an operator.
Engaging in projec t coordination as an operator willcontribute to the expansion of oppor tunities of block andacreage acquisition through enhancement of technologicalcapabilities and greater presence in oil-producing countries

and the industry. At the same time, there exist risks such as
constraints on the recruitment of personnel who have specialized
operational skills and an increase in ﬁnancial burden. Inability toadequately cope with such risks could have an adverse effect on
the Group’s results of operations.

(5) Project partners
In t he oil and gas d evelo p ment b usines s, as previously
mentioned, several companies often engage in joint businessfor the purpose of dispersion of risk and financial burden. In
such cases, the partners generally enter into a joint operating
agreement among themselves to decide on the decision-making
procedure for execution of the joint business, or to decide on
an operator that conducts business on their behalf. A company
that is a partner in one property in which the Group is engaged
in joint business may become a competitor in the acquisition ofother blocks and acreages, even though the relationship with thepartner may be good.
In undertaking the joint business, participants in principle
bear a ﬁnancial burden in proportion to their interest share. Any
inability by a joint business partner to fulﬁll this ﬁnancial burden
may adversely affect the project.

(6) Disaster and accident risks
Oil and gas development entails the risk that operational
accidents and disasters may occur in the process of exploration,
development, production and transportation. Should such an
accident, disaster or other such incident occur, there is the riskthat costs will be incurred, excluding compensation covered byinsurance, due to facility damage, as well as the risk of a major
accident involving loss of life. In addition, a cost burden forrecovery or opportunity loss from the interruption of operations
could occur. For the domestic natural gas business, the Company

has continued to procure natural gas regasiﬁed from imported
LNG since January 2010 to supplement its traditional supplies
of natural gas produced in Japan. An inability to procure natural
gas regasiﬁed from imported LNG due to an accident, disasteror incident at city gas companies that supply the source ofpurchases may interfere with the Company’s ability to supply to
its customers. This could in turn have an adverse effect on the
Company’s domestic natural gas business.
With regard to environmental problems, there is a possibilityof soil contamination, air pollution, and freshwater and seawaterpollution. The Group has established a “Health, Safety andEnvironment Policy,” and as a matter of course abides by theenvironmental laws, regulations, and standards of the countries inwhich we operate and give due consideration to the environment
in the conduct of business, based on our independent guidelines.
Nevertheless, in the event of an operating accident or disasterthat for some reason exerts an impact on the environment, a
response or necessary cost burden for recovery or loss fromthe interruption of operations could occur. Furthermore, in theevent of changes to or the strengthening of the environmental
laws, regulations, and standards (including support measures forthe promotion of new, renewable energies) of the countries inwhich we operate, it may be necessary for the Group to devise
additional measures, and an associated cost burden could occur.
Although the Group maintains accident insurance in thenatural conduct of its operations, should such an accident ordisaster be attributable to willful misconduct or negligence on
the part of the Group, the occurrence of a cost burden could
have an adverse affect on ﬁnancial results. Also, such accident
or trouble would result in receiving administrative punishment or
result in damage to the Group’s credibility and reputation as anoil and gas development company, and could therefore have an
adverse affect on future business activities.

2. EFFECTS OF FLUCTUATIONS IN CRUDE OIL PRICES, NATURALGAS PRICES, FOREIGN EXCHANGE AND INTEREST RATES ON
FINANCIAL RESULTS(1) Effects of ﬂuctuations in crude oil prices and natural
gas prices on ﬁnancial results
Crude oil prices and a large percentage of natural gas prices
in overseas businesses are determined by international market
conditions. In addition, those prices fluctuate significantly inresponse to the inﬂuence of a variety of factors including global
or local supply and demand as well as trends and conditionsin the global economy and ﬁnancial markets. The vast majorityof these factors are beyond the control of the Company. In
this regard, INPEX is not in a position to accurately predict
movements in future crude oil and natural gas prices. The
Group’s sales and proﬁts are subject to the effects of such priceﬂuctuations. Such effects are highly complex and are caused by
the following factors.
1) Although a majority of natural gas selling prices in overseas
businesses are linked to crude oil prices, they are not in direct

proportion to crude oil prices.
2) Because sales and profits are determined on the basis of
crude oil prices and natural gas prices at the time sales arebooked, actual crude oil transaction prices and the averageoil price during the accounting period do not necessarily
correspond.
For the domestic natural gas businesses, the Company has
continued to purchase natural gas regasiﬁed from imported LNG
as a raw material in addition to natural gas produced in Japan

Financial /Corporate Information

probabilistic methods are employed, there should be at least a
50% probability that the quantities actually recovered will equalor exceed the sum of estimated proved and probable reserves.
In addition, possible reserves are also defined in accordancewith PRMS guidelines. In specific terms, possible reserves area part of those reserves not categorized as proved reserves orprobable reserves. Possible reserves refer to oil and gas volumes
that are less likely to be recovered than probable reserves basedon analyses of geological and engineering data. In this case,
it is unlikely that the actual quantity of oil and gas recovered
will exceed the sum of proved reserves, probable reserves andpossible reserves. Furthermore, when probabilistic methods
are employed to calculate possible reserves, there should be
at least a 10% probability that the quantities recovered will
equal or exceed the sum of proved reserves, probable reserves
and possible reserves. Probable reserves can be upgraded toproved reserves after the addition of new technical data, under
different economic conditions, and with advances in operational
conditions. Never theless, probable reser ves do not offer aguarantee of the production of total reserves during a future
production period with the same certainty as proved reserves.
For fur ther details on probable reser ves of crude oil,condensate, LPG and natural gas held by the Group, including
afﬁliates accounted for under the equity method, please see thesection “Oil and Gas Reserves and Production Volume” on P. 97.

since January 2010. The price of the Company’s natural gas
sold in Japan is comprised of a ﬁxed price portion as well as a
portion that reﬂects ﬂuctuations in the price of imported LNG.
In addition to the direct impact of trends in the market prices of
LNG and competing energy sources on that portion that reﬂects
ﬂuctuations in the price of imported LNG, contract negotiations
held each ﬁscal year with end purchasers could have an indirect

INPEX CORPORATION Annual Report 2011091

reason, the exchange risk associated with the above businessis diminished and the impact of fluctuations in exchange rates(2) The effect of ﬂuctuations in exchange rates on
ﬁnancial results

on profit and loss tends to be mitigated. Moreover, although

As most of the Group’s business consists of E&P conducted
overseas, associated revenues (sales) and expenditures (costs) aredenominated in foreign currencies (primarily in U.S. dollars), andproﬁt and loss is subject to the effects of the foreign exchange
market. In the event of appreciation in the value of the yen, yendenominated sales and proﬁts decrease. Conversely, in the eventof depreciation in the value of the yen, yen-denominated sales
and proﬁts increase.
On the other hand, when borrowing necessar y funds,
the Company borrows in foreign currencies. In the event ofappreciation in the value of the yen, a foreign exchange gain on
foreign-currency denominated borrowings is recorded as a resultof ﬁscal year-end conversion; in the event of depreciation in thevalue of the yen, a foreign exchange loss is incurred. For thisassociated with movements in foreign currency exchange rates

the Company is taking measures to reduce a portion of the risks
these measures by no means cover all possible risks. As a result,the impact of fluctuations in foreign currency exchange rates
cannot be completely eliminated.

(3) The effect of ﬂuctuations in interest rates on
ﬁnancial results
The Group raises some of the funds necessary for explorationand development operations through borrowing. Much ofthese borrowings are with variable-rates, long term borrowings
based on the U.S. dollar six months LIBOR rate. Accordingly, theCompany’s proﬁts are subject to the inﬂuence of ﬂuctuations in
U.S. dollar interest rates.

3. OVERSEAS BUSINESS ACTIVITIES AND COUNTRY RISKThe Group engages in a large number of oil and gas
development projects overseas. Because the Group’s businessactivities, including the acquisition of blocks and acreages, areconducted on the basis of contracts with the governments ofoil-producing countries and other entities, steps taken by oilproducing countries to further tighten controls applicable tohome country natural resources, suspension of operation by
conflicts and other factors, changes in the political, economic,
and social circumstances in such oil-producing countries orneighboring countries (including government involvement,
stage of economic development, economic growth rate, capital
reinvestment, resource allocation, restric tion of economic
activities by global community, government control of foreignexchange or foreign remittances, and the balance of international
payments), the application of OPEC production ceilings in OPEC

member countries and changes in the legal system of thosecountries (including the establishment or abolition of laws or
regulations and changes in their interpretation or enforcement)
could have a signific ant impac t on the Group’s busines sor results unless the impact is compensated by insurance.
Additionally, against the background of rising development
costs and other changes in the business environment, theprogress of oil and gas projects, and the need to addressenvironment al is sues, the gover nment s of oil- producing
countries may seek to renegotiate the ﬁscal conditions including
conditions of existing oil contrac ts related to blocks andacreages. In the event that the ﬁscal conditions of contracts were
to be renegotiated, this could have an adverse effect on theGroup’s business performance.

4. DEPENDENCE ON SPECIFIC GEOGRAPHICAL AREAS OR
PROPERTIES(1) Production volume
The Group engages in stable production of crude oil and natural
gas in the Offshore Mahakam Block (Indonesia), the ADMA Block(United Arab Emirates), the Minami Nagaoka Gas Field (Japan)
and so on. Through a process of business integration, the Group
had established a wide ranging, diversiﬁed yet balanced portfoliothat encompassed the Asia-Oceania regions (particularly Japan,
Indonesia, and Australia), the Middle East and Africa, Eurasia
including Caspian Sea area and the Americans. As of ﬁscal 2010,
however, the Asia and Oceania regions accounted for about
50% of the Group’s production volume, and the Middle East andAfrica accounted for about 32% making up the vast majority of
the Group’s operations. Looking ahead, the Group will endeavor

092

INPEX CORPORATION Annual Report 2011

to further enhance the balance of its asset portfolio on a regional
basis.
However, the Group relies heavily on speciﬁc geographicalareas and proper ties for it s produc tion volume, and theoccurrence in these properties of an operational problem or
difﬁculty could have an adverse effect on the Group’s operational
results.

(2) Principal business areas and contract expiration
dates
Expiration dates are customarily stipulated in the agreements
related to blocks and acreages, which are prerequisites for theGroup’s overseas business activities. Although March 30, 1997

was the initial contract expiration date in the production sharing
agreement for the Offshore Mahakam Block of Indonesia, theGroup’s principal geographical business area, an extension wasapproved in 1991, and the current expiration date is December
31, 2017. On the basis of the concession agreement for the
ADMA Block, the concession expiration date is March 8, 2018.
(However, the expiration date for the Upper Zakum Oil Field
has been extended to March 8, 2026.) Although the Groupplans to make efforts together with partners to further extend
these agreements, inability to re-extend the agreements or
unfavorable contract terms and conditions at the time of reextension could have an adverse effect on the Group’s results.
Even should the agreements be reextended, we anticipate thatremaining recoverable reserves may decrease at the time of reextension. Although the Group is striving to acquire intereststhat can substitute these properties, failure to acquire properties
to fully substitute for these properties could have an adverse
effect on the Group’s results.
In addition, in the event that the period for exploration in oil
and gas ﬁelds currently under exploration is ﬁxed by contracts,
and in the case of ﬁelds where oil and/or gas reserves are foundthat are deemed to be commercialized, and the Company isunable to decide on the transition to the development stage
by the expiration of the current contract, efforts will be madethrough negotiations with the government of the oil- or gasproducing country in question to have the periods extended.
However, there remains the possibility that such negotiations
may not be successfully concluded, in which event the Company
would be forced to withdraw from operations in the oil or gas
field concerned. Also, as a rule, when there has been a major
breach of contract on the part of one party, it is customary forthe other party to have the right to cancel the agreement before
the expiration date. The agreements for properties in theseprincipal geographical business areas contain similar provisions.
The Group has never experienced early cancellation of anagreement due to breach of contract, and we do not anticipate
such an occurrence in the future. Nevertheless, a major breachof contract on the part of a party to an agreement could result incancellation of an agreement before the expiration date. And in
the overseas gas development and production activities, in manycases we are selling and supplying gas based on long-term sales
and supply contracts in which expiration dates are stipulated.
We plan to make efforts with partners to extend or re-extend theexpiration date. Nevertheless, inability to extend the contracts,or the occurrence of cases in which extension is made but sales
and supply volumes are reduced, could have an adverse effecton the Group’s business or results.

5. PRODUCTION SHARING AGREEMENTS(1) Details of production sharing agreements
The Group has entered into production sharing agreements withcountries including Indonesia and Caspian Sea area.
Production sharing agreements are agreements by which
one or several oil and gas development companies serve ascontractors that undertake at their own expense explorationand development work on behalf of the governments of oilproducing countries or national oil companies and receive
production from the projects as cost recovery and compensation.
That is to say, when exploration and development work resultsin the production of oil or gas, the contractors recover the
exploration and development costs they incurred by means of ashare in the production. The remaining production (crude oil andgas) is shared among the oil-producing country or national oil
company and the contractors according to ﬁxed allocation ratios.
(The contactors’ share of production after cost recovery is called“proﬁt oil and gas.” In the case of gas in Indonesia, as sales are
conducted by Indonesia, the contractors receive cost recovery
and proﬁt gas in the form of cash.) On the other hand, in cases
when exploration fails and expected production is not realized,
the contractors are not to recover their invested
funds.

(2) Accounting treatment of production sharing
agreements
When a company in the Group owns participating interests under
production sharing agreements, as mentioned above, in the roleof contractor it invests technology and funds in the explorationand development of the proper t y, recovers the inves ted
costs from the production produced, and receives a share of
the remaining production after recovery of invested costs ascompensation.
C o s t s i nve s te d o n t h e b a s i s of p r o d u c t i o n s h a r i n g
agreements are recorded on the balance sheet as assets forwhich future recovery is anticipated under the balance sheet item
“Recoverable accounts under production sharing.” After the startof production, recovered costs on the basis of those agreements
are deducted from this balance sheet item.
A s produc tion received under produc tion sharing
agreements is divided into the cost recovery portion and thecompensation portion, the method of calculating cost of sales
is also distinctive. That is to say, the full amount of production
received is temporarily charged to cost of sales as the costof received production, and subsequently the amount of thecompensation portion is calculated and this amount is booked as
an adjustment item to cost of sales (“Free of charge production
allocated”). Consequently, only the cost recovery portion of
production after deduction of the compensation por tion isbooked as cost of sales.

INPEX CORPORATION Annual Report 2011

Financial /Corporate Information

affect on the ﬁxed price portion.

093

6. Relationship with the Japanese Government
Although the government of Japan (the Minister of Economy,
Trade and Industry) holds 18.94% of the Company’s commonshares issued and a special-class share as of June 29, 2011,
the Company autonomously exercises business judgment as a
private corporation. There is no relationship of control, such as
through the dispatch of officers or other means between the
Company and the Japanese government. Moreover, we believethat no such relationship will develop in the future. Furthermore,
there is no concurrent posting or secondment to the Company ofofficers or employees from the Japanese government.

(2) Ownership and sale of the Company’s shares by theJapanese government (the Minister of Economy, Tradeand Industry)
The Japanese government (the Minister of Economy, Trade andIndustry) holds 18.94% of the shares of the common stock issued
by the Company. For this reason, it is possible that in the future
the Minister of Economy, Trade and Industry, in accordancewith the purport of the after-mentioned Report, may sell off
the Company’s shares in Japan or overseas. This could have an
impact on the market price of the Company’s shares.
The Minister of Economy, Trade and Industry holds one
share of the Company’s special-class share. The Minister of
Economy, Trade and Industry, as the holder of the special-classshare, has veto rights over certain resolutions of the Company’s
general shareholders’ meetings and meetings of the Board of
Directors. For details on the special-class share, please refer tosection 8 “Special-Class Share” below.

7. Treatment of shares of the Group’S projectcompany owned by Japanese government and
JOGMEC(1) Treatment of shares of the Group’s projectcompany owned by Japan National Oil Corporation(JNOC)
With regard to the liquidation and disposition of the oil andgas upstream assets owned by JNOC, which was dissolved on
April 1, 2005, the Policies Regarding the Disposal of Oil and
Gas Development-Related Assets Held by Japan National Oil
Corporation (hereinafter the “Report”) was announced on March
18, 2003 by the Japan National Oil Corporation Asset Evaluationand Liquidation Deliberation Subcommittee of the Advisory
Committee on Energy and Natural Resources, an advisory bodyof the Ministry of Economy, Trade and Industry.
I n t h e Re p o r t , I N PE X CO R P O R AT I O N ( p r i o r t o t h e
integration with Teikoku Oil; reorganized on October 1, 2008)
was identified as a company that should comprise part of a corecompany, and is expected to play a role in efficient realizationof a stable supply of energy for Japan through the involvement
by a national flagship company. In response to the Report, theCompany has sought to promote efficient realization of a stablesupply of energy for Japan while taking advantage of synergy
with the efforts of active resource diplomacy on the part of theJapanese government, and has aimed to maximize shareholder
value by engaging in highly transparent and efficient business
operations.
As a result, with regard to the integration by means oftransfer of shares held by JNOC proposed in the Report, INPEXCORPORATION and JNOC concluded the Basic Agreement
Concerning the Integration of Assets Held by JNOC into INPEXCORPORATION of February 5, 2004 (hereinafter the “Basic
Agreement”) and a memorandum of understanding related
to Basic Agreement (hereinafter “MOU”). On March 29, 2004,
INPEX CORPORATION and JNOC entered into related contracts
including the Basic Contract Concerning the Integration of094

INPEX CORPORATION Annual Report 2011

Assets Held by JNOC into INPEX CORPORATION (hereinafter
the “Basic Contract”), achieving the agreement on the details
including the treatment of the project companies subject to theintegration and shareholding ratios.
I n 2 0 0 4 I N P E X C O R P O R AT I O N a c c o m p l i s h e d t h e
integration of Japan Oil Development Co., Ltd. (JODCO), INPEXJava Ltd. (disposal was completed on September 30, 2010) and
INPEX ABK, Ltd. which are three of four companies covered by
the Basic Agreement. Although INPEX Southwest Caspian Sea
Ltd. (hereinafter“INPEX Southwest Caspian”) would become awholly owned subsidiary of INPEX CORPORATION by means of ashare exchange and the procedures were undertaken, the shareexchange contract was invalidated owing to failure to accomplish
the terms and conditions of the share exchange contract and theplanned share exchange was cancelled. Following the dissolutionof JNOC on April 1, 2005, the Minister of Economy, Trade andIndustry succeeded to the INPEX Southwest Caspian shares held
by JNOC. The Company continues to study the possibility toacquire the shares. However, the future treatment of these sharesis undecided and acquisition of INPEX Southwest Caspian shares
could be unavailable.
The treatment of Sakhalin Oil and Gas Development Co., Ltd.
(here in after “SODECO”), INPEX Offshore North Campos, Ltd.,INPEX North Makassar, Ltd. (liquidation proceedings completed
on December 19, 2009), INPEX Masela, Ltd., and INPEX North
Caspian Sea, Ltd. Was agreed between INPEX CORPORATION
and JNO C in t he MOU of Fe b r uar y 5, 20 0 4. Re garding
the treatment of shares of SODECO, refer to the section “(2) Treatment of shares of Sakhalin Oil and Gas Development
owned by the Japanese government” below. With regard to thetransfer to INPEX CORPORATION of the shares in the above
project companies other than SODECO, it was decided that theshares are to be transferred for cash compensation as soon as

prerequisites such as the consent of the oil-producing country
and joint venture partners and the possibility of appropriate
asset evaluations are in place. However, the transfer of shares
held by JNOC in the above companies has not been decided andthe shares in the above project companies were succeeded to by
the Japan Oil Gas and Metals National Corporation (hereinafter“JOGMEC”) on the dissolution of JNOC on April 1, 2005, except
shares related to INPEX Nor th Makassar, Ltd., to which the
Minister of Economy, Trade and Industry succeeded. JOGMEC
states in its “medium-term objective” and “medium-term plan”
that the shares succeeded to from JNOC will be disposed ofin an appropriate manner, but the timing and manners of thedisposal have not been decided, and it is possible that theCompany will be unable to acquire the shares.

(2) Treatment of the shares of Sakhalin Oil and Gas
Development (SODECO) owned by the Japanese
government
The Japanese government (the Minister of Economy, Tradeand Industr y) owns 50% shares of SODECO. SODECO wasestablished in 1995 to engage in an oil and gas explorationand development project located on the northeast continental
shelf off Sakhalin Island. SODECO owns a 30.0% interest in the
Sakhalin-1 Project, of which ExxonMobil of the United Statesis the operator. This project started production in October
2005. Furthermore, there is a plan for additional development
operations (Phase 2) for the purpose of the full-scale productionof natural gas. The Company holds a 5.74% of SODECO sharesissued and outstanding.

In the previously mentioned Report, SODECO, along withINPEX CORPORATION and JODCO, has been identified as acompany that should comprise part of a core company in Japan’s
oil and gas upstream industry in the future.
In accordance with the Report, it is assumed that private
sec tor shareholders, including INPEX CORPOR ATION, will
acquire shares of SODECO issued and outstanding to which the
Minister of Economy, Trade and Industry succeeded and thatwere previously held by JNOC (50.0%). The Company plans tohold a maximum of 33% of the SODECO shares to become its
largest shareholder. In the event that the consent of SODECO’s
joint-venture par tner s, the relevant Rus sian gover nment
entity, or other parties is necessary for the acquisition of theshares, obtaining the consent is a prerequisite for acquisition.
In addition, it will be necessary to reach agreement on theshareholder composition for SODECO, the share transfer price,and other matters.
In the event that the additional acquisition of the SODECO
shares is realized, the Group will hold a substantial ownershipinterest in oil and gas assets in Russia, as well as in Asia andOceania, the Middle East, Caspian Sea area, and other regions,and we expect the acquisition to contribute to the achievementof a more balanced overseas asset portfolio for the Group.
However, at this time it is undecided whether agreement
concerning acquisition of the shares with the Minister of
Economy, Trade and Industry will be reached as anticipated andwill be realized. Also, even in the event that the acquisition isrealized, the conditions and time of acquisition are undecided
and the acquisition by the Company could be unavailable.

8. Special-Class Share(1) Overview of the special-class share
1) Reason for the introduction
The Company was established as the holding company througha stock transfer between INPEX CORPORATION and Teikoku
Oil Co., Ltd. on April 3, 2006. Along with this, a classified shareoriginally issued by INPEX CORPORATION (prior to the merger)
was transferred and at the same time the Company issued aclassified share with the same effect (hereinafter the “specialclass share”) to the Minister of Economy, Trade and Industry.
The classified share originally issued by INPEX CORPORATION
was the minimally required and a highly transparent measure
to eliminate the possibility of management control by foreign
capital while not unreasonably impeding the efficiency andflexibility of management based on the concept in the Reportdiscussed in the above section 7. INPEX CORPORATION is
identified as a company that should comprise part of a corecompany for Japan’s oil and gas upstream industr y and is
expected to play a role in efficient realization of a stable supplyof energy for Japan as a national flagship company. On the basisof the concept of the Report, the Company issued the specialclass share because it can be considered an effective means ofpreventing risks such as a speculative hostile takeover.

2) Shareholders’ meeting resolutions, dividends, distributionof residual assets, and redemption
Unless otherwise provided by laws or ordinances, the specialclass share does not have any voting rights at the Company’s
general shareholders’ meetings. The holder of the specialclass share will receive the same amount of dividends, interim
dividends, and distributions of residual assets as a holder ofcommon stock. The special-class share will be redeemed byresolution of the Board of Directors of the Company if the holderof the special-class share requests redemption or if the specialclass share is transferred to a party other than the government ofJapan or an independent administrative body that is fully fundedby the government of Japan.

Financial /Corporate Information(1) The Company’s relationship with the Japanese
government3) Veto rights in the Articles of Incorporation
The Ar ticles of Incorporation of the Company provide thatan approval resolution of the meeting of the holder of thespecial-class share is necessary in addition to resolutions of theCompany’s general shareholders’ meetings and resolutions ofmeetings of the Board of Directors for the decisions on certain
impor tant mat ters such as the appointment or removal of
Directors, disposition of material assets, changes to the Articles
of Incorporation, business integration, capital reduction orcompany dissolution in connection with the business of the

INPEX CORPORATION Annual Report 2011095

Oil and Gas Reserves and Production Volume

1. Oil and Gas Reserves

4) Criteria for the exercise of veto rights provided in theguidelines
Guidelines concerning the exercise of the veto rights havebeen established in a Ministry of Economy, Trade and Industry
Notice (No. 220, 2008) (hereinafter the “Notice”). The guidelines
stipulate the exercise of veto rights only in the following specificcases.
• When resolutions pertaining to appointment or removal of
Directors and Integration are not voted down and it is judgedthat the probability is high that the Company will engage inmanagement inconsistent with the role that a core company
should perform for efficient realization of a stable supply ofenergy to Japan.
• When resolutions pertaining to disposition of material assets
are not voted down and the objects of disposition are oil andgas exploration or production rights or rights similar thereto
or shares or ownership interest in the Company’ subsidiary
whose principal assets are said rights and it is judged thatthe probability is high that the Company will engage inmanagement inconsistent with the role that a core company
should perform for efficient realization of a stable supply ofenergy to Japan.
• When resolutions pertaining to amendments to the Company’s
Articles of Incorporation relating to changes in the Company’sbusiness objectives, capital reduction, or dissolution are notvoted down and it is judged that the probability is high that
the Company will engage in management inconsistent withthe role that a core company should perform for efficient
realization of a stable supply of energy to Japan.
• When resolutions pertaining to amendments to the Articles ofIncorporation granting voting rights to any shares other thanthe common shares of the Company are not voted down andcould have an effect on the exercise of the voting rights of thespecial-class share.
It is provided that the above guidelines shall not be limited in theevent that the Notice is changed in the light of energy policy.

(2) Risk in connection with the special-class share

Proved reserves

Although the special-class share was issued as a minimallyrequired measure to eliminate the possibility of management
controlled by foreign capital while not unreasonably impeding
the efficiency and flexibility of management, anticipated risks inconnection with the special-class share include the following.

T h e f o ll o w i n g t a b l e s li s t t h e p r ove d r e s e r ve s of c r u d eoil,condensate, LPG and natural gas of our company, ourconsolidated subsidiaries and equit y method af filiates on
main project. Disclosure details applicable to proved reserves
are presented in accordance with the rules and regulations
stipulated by the U.S. Financial Accounting Standards Board,

1) Possibility of conflict of interest between national
policy and the Company and its common shareholders
It is conceivable that the Minister of Economy, Trade and Industry
could exercise the veto rights in accordance with the above
guidelines provided in the Notice. As the guidelines have been
provided from the standpoint of efficient realization of a stablesupply of energy to Japan, it is possible that the exercise of theveto rights by the Minister of Economy, Trade and Industry could
conflict with the interest of other shareholders who hold theCompany’s common shares. Also, it is possible that the above
guidelines could be changed in the light of energy policy.
2) Impact of the exercise of veto rights on the price ofshares of common stock
As mentioned above, as the holder of the special-class share has
the veto rights over certain important matters in connection withthe business of the Company, the actual
exercise of the veto rights over a certain matter could have an
impact on the price of the Company’s shares of common stock.
3) Impact on the Company’s degree of freedom in businessand business judgment
As the Minister of Economy, Trade and Industr y holds the
special-class share with the previously mentioned veto rights,
the Company needs a resolution of the meeting of the holderof the special-class share concerning the above matters. For
this reason, the Company’s degree of freedom in managementin those matters could be restricted by the judgment of the
Minister of Economy, Trade and Industry. Also, attendant on theneed for a resolution of the meeting of the holder of the specialclass share concerning the above matters, a cer tain periodof time is required for procedures such as the convening andholding of meetings and resolutions and for the processing offormal objections, if necessary.

9. Concurrently Serving Outside Directors
As of June 29, 2011, the Board of Directors of the Company iscomposed of 15 members, four of whom are outside directors.
The four outside directors have many years of management
experience in the Company’s business and are able to offer
objective, professional advice regarding operations. For thisreason, they were asked to join the Board of Direc tors tocontribute to the development of the Company’s business.
The four outside directors concurrently serve as directors oradvisers of Japan Petroleum Exploration Co., Ltd., Mitsubishi
Corporation, Mitsui Oil Exploration Co., Ltd. and JX Holdings,
Inc. (“shareholder corporations”), respectively.
At the same time, however, the shareholder corporations are

096

INPEX CORPORATION Annual Report 2011

involved in businesses that overlap with those of the Company.
The Company therefore recognizes that it must pay particularattention to corporate governance to avoid conflicts of interest inconnection with competition and other matters.
To this end, all Company directors, including the outside
directors, are required to sign a written undertaking to carry out
their duties as officers of the Company appropriately and withthe highest regard for the importance of such matters as their
obligations in connection with noncompetitive practices under
the Japanese Companies Act, the proper manner for dealing
with conflict of interest, and confidentiality.

Japan
Crude oil(MMbbls)

Asia & Oceania
Gas
(Bcf)

Proved developed and undeveloped reserves
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 200918
713
Extensions and discoveries——
Acquisitions and sales——
Revisions of previous estimates00Interim production(1)(57)
As of March 31, 201016656
Equity-method Affiliates
As of March 31, 2009——
Extensions and discoveries——
Acquisitions and sales——
Revisions of previous estimates——Interim production——
As of March 31, 2010——
As of March 31, 2010
16
656
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 2010
16
656
Extensions and discoveries——
Acquisitions and sales——
Revisions of previous estimates
0—Interim production(1)(46)
As of March 31, 201115611
Equity-method Affiliates
As of March 31, 2010——
Extensions and discoveries——
Acquisitions and sales——
Revisions of previous estimates——Interim production——
As of March 31, 2011——
Proved developed and undeveloped reserves
15611
As of March 31, 2011
Proved developed reserves
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 201115611
Equity-method Affiliates
As of March 31, 2011——
Proved undeveloped reserves
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 2011——
Equity-method Affiliates
As of March 31, 2011——

and are reported in accordance with the Accounting Standard
Codification Topic 932 “Extractive activities —Oil and Gas.”
Our proved reserves as of March 31, 2011 were 899.16 million
barrels for crude oil, condensate and LPG, 2,451.0 billion cubicfeet for natural gas and 1,307.67 million boe (Barrels of Oil
Equivalent) in total.
Eurasia(Europe & NIS)

Middle East &AfricaAmericas

Total

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

Crude oil(MMbbls)

Gas
(Bcf)

124
5
—
(1)
(17)
111

1,923
—
—
45
(319)
1,649

211
—
—
6
(10)
207

—
—
—
—
—
—

457
—
—
3
(27)
433

—
—
—
—
—
—

5
—
—
1
(2)
4

159
—
—
62
(32)
190

815
5
—
9
(57)
771

2,795
—
—
107
(408)
2,495

2
—
—
(0)
(0)
1
112

505
—
—
(30)
—
475
2,124

—
—
—
—
—
—
207

—
—
—
—
—
—
—

226
—
—
(2)
(21)
203
636

—
—
—
—
—
—
—

6
—
—
(1)
(1)
4
8

1
—
—
(0)
(0)
0
190

233
—
—
(2)
(22)
209
980

505
—
—
(30)
(0)
475
2,970

111
—
(6)
4
(24)
85

1,649
—
(37)
(100)
(305)
1,208

207
—
7
6
(10)
210

—
—
—
—
—
—

433
—
—
(3)
(27)
404

—
—
—
—
—
—

4
—
(3)
0
(1)
0

190
—
—
2
(30)
162

771
—
(2)
8
(63)
715

2495
—
(37)
(98)
(380)
1,980

1
—
—
0
(0)
2

475
—
—
16
(20)
470

—
—
—
—
—
—

—
—
—
—
—
—

203
—
0
(1)
(23)
179

—
—
—
—
—
—

4
—
—
0
(2)
3

0
—
—
0
(0)
0

209
—
0
(1)
(24)
184

475
—
—
16
(21)
471

87

1,678

210

—

583

—

3

162

899

2,451

69

986

35

—

404

—

0

161

523

1,757

2

470

—

—

179

—

2

0

183

471

16

222

176

—

—

—

0

1

192

223

—

—

—

—

—

—

1

0

1

0

Note 1. As of March 31, 2011, INPEX held proved reserves in Indonesia of approximately 51.0 million barrels for crude oil and around 1,544.0 billion cubic feet for natural gas for a total of about
308.5 million boe (Barrels of Oil Equivalent).
2. Proved Reserves (as of March 31,2011)of the following blocks and fields include minority interests.
		 Eurasia (Europe & NIS): ACG (49%), Kashagan (55%),Middle East & Africa: West Bakr (47.3%), Americas: Copa Macoya (30%)
3. MMbbls: Millions of barrels
4. Bcf: Billions of cubic feet
5. Crude oil includes condensate and LPG

Financial /Corporate Information

Company. Accordingly, the Minister of Economy, Trade andIndustry, as the holder of the special-class share, has veto rights
over these important matters.

Standardized measure of discounted future net cash flows and changes relating to proved oil and gas reserves
Disclosure details for the standardized measure of discounted
future net cash flows relating to proved reserves and movements
during the fiscal year under review are presented in accordancewith the rules and regulations stipulated by the U.S. Financial
Accounting Standards Board, and are reported in accordancewith the Accounting Standard Codification Topic 932 “Extractive
activities —Oil and Gas.”
In calculating the standardized measure of discounted future

net cash flows, the period average of oil and gas prices at thefirst day of each month as well as period-end costs are applied tothe estimated annual future production from proved reserves todetermine future cash inflows.
Future development costs are estimated based upon
constant price assumptions and assume the continuation ofexisting economic, operating, and regulatory conditions. Future
income taxes are calculated by applying the period-end statutory

INPEX CORPORATION Annual Report 2011097

fair market value of the oil and natural gas reser ves or thepresent value of estimated cash ﬂows since no economic value isattributed to potential reserves, the use of a 10% discount rate is
arbitrary, and prices change constantly.
We use the exchange rates of ¥93.04 and ¥83.15 to US$1.00
as of March 31, 2010 and 2011, respectively.

Probable reserves and possible reserves
The following tables list the probable and possible reserves of crude oil, condensate, LPG and natural gas of our company ,ourconsolidated subsidiaries and equity method afﬁliates on main project. Our probable reserves as of March 31, 2011 were 1,392.85
million barrels for crude oil, condensate and LPG, 8,553.7 billion cubic feet for natural gas and 2,818.47 million boe in total. In addition,
the Group’s possible reserves as of March 31, 2011 were 218.91 million barrels for crude oil, condensate and LPG, 2,196.3 billion cubicfeet for natural gas and 584.96 million boe in total.

Millions of Yen

March 31, 2010

Total

INPEX CORPORATION and Consolidated Subsidiaries
Future cash inflows
Future production and development costs
Future income tax expenses
Future net cash flows
10% annual discount for estimated timing of cash flows
Standardized measure of discounted future net cash flows

Japan

Americas¥ 6,194,451(2,159,840)(2,548,220)
1,486,391(709,314)
777,077¥ 495,648(128,497)(117,201)
249,950(121,312)
128,638¥1,707,919(648,877)(449,341)
609,701(189,090)
420,611¥1,150,581(485,115)(149,413)
516,053(337,759)
178,294¥ 2,781,641(870,046)(1,820,429)
91,166(56,669)
34,497¥ 58,663(27,306)(11,837)
19,520(4,483)
15,037

1,439,084(509,279)(856,117)
73,688(37,025)

—
—
—
—
—

83,504(29,380)(19,192)
34,932(18,384)

—
—
—
—
—

1,329,955(464,240)(835,636)
30,079(16,900)

25,625(15,659)(1,289)8,677(1,740)36,663—

16,548—13,1796,937

813,740¥ 128,638¥ 437,159¥ 178,294

47,676¥ 21,974

Equity-method Affiliates
Future cash inflows
Future production and development costs
Future income tax expenses
Future net cash flows
10% annual discount for estimated timing of cash flows
Share of equity method investees’ standardized measure of discounted
future net cash flows
Total consolidated and equity-method affiliates in Standardized measure of
discounted future net cash flows

Eurasia
Middle East &Asia & Oceania (Europe & NIS)
Africa¥¥Notes: 1. Reserves of the following blocks and fields include minority interests.
Asia & Oceania: Offshore Northwest Java (16.5%), Offshore Southeast Sumatra (16.5%)
Eurasia (Europe & NIS): ACG (49%), Kashagan (55%)
Middle East & Africa: Abu Al Bukhoosh (5%), West Bakr (47.3%)
Americas: Copa Macoya (30%)

INPEX CORPORATION and Consolidated Subsidiaries
Future cash inflows
Future production and development costs
Future income tax expenses
Future net cash flows
10% annual discount for estimated timing of cash flows
Standardized measure of discounted future net cash flows
Equity-method Affiliates
Future cash inflows
Future production and development costs
Future income tax expenses
Future net cash flows
10% annual discount for estimated timing of cash flows
Share of equity method investees’ standardized measure of discounted
future net cash flows
Total consolidated and equity-method affiliates in Standardized measure of
discounted future net cash flows

Eurasia
Middle East &Asia & Oceania (Europe & NIS)
Africa

Total

Japan

¥ 6,350,230(1,913,933)(2,686,247)
1,750,050(749,379)
1,000,671¥ 539,869(117,393)(139,424)
283,052(128,557)
154,495¥1,590,216(449,736)(478,851)
661,630(174,490)
487,140¥1,383,629(494,241)(179,337)
710,051(394,948)
315,103¥ 2,806,307(833,128)(1,886,511)
86,667(49,389)
37,278¥ 30,209(19,434)(2,125)8,650(1,994)
6,656

1,397,434(448,355)(866,698)
82,381(33,395)-

101,144(49,888)(15,943)
35,314(15,436)-

1,276,469(390,130)(847,664)
38,676(17,282)

19,821(8,338)(3,091)
8,392
(677)

48,986-

19,878-21,393

7,715¥ 1,049,657¥ 154,495¥ 507,017¥ 315,103

58,671¥ 14,370¥

Americas

Notes: 1 Reserves of the following blocks and fields include minority interests.
Eurasia (Europe & NIS): ACG (49%), Kashagan (55%)
Middle East & Africa: West Bakr (47.3%)
Americas: Copa Macoya (30%)

Millions of Yen

INPEX CORPORATION and Consolidated Subsidiaries
Standardized measure, beginning of period
As of April 1, 2010
Changes resulting from:
Sales and transfers of oil and produced, net of
production costs
Net change in prices, and production costs
Development cost incurred
Changes in estimated development costs
Revisions of previous quantity estimates
Accretion of discountNet change in income taxes
Extensions, discoveries and improved recoveries
OtherStandardized measure, end of the period
As of March 31, 2011

Probable reserves
Crude oil, condensate and LPG (MMbbls)
Natural gas (Bcf)

Japan

4
133

Eurasia
Middle East &Asia & Oceania (Europe & NIS)
Africa

629
8,224

540
—

Americas114—

Subtotal

72
104

1,358
8,461

35
93

Total

1,393
8,554

Note 1: Bitumen reserve volumes are included in the net probable reserves of crude oil, condensate and LPG for the Americas.

March 31, 2011
Possible reserves
Crude oil, condensate and LPG (MMbbls)
Natural gas (Bcf)

Japan

5
169

Eurasia
Middle East &Asia & Oceania (Europe & NIS)
Africa

163
2,007

27
—

Americas9—

Subtotal

918Interest in
Reserves Heldby EquityMethod
Afﬁliates

212
2,195

7
2

Total

219
2,196

Notes: 1. MMbbls: Millions of barrels
2. Bcf: Billions of cubic feet

2. OIL AND GAS PRODUCTION
Millions of Yen

March 31, 2011

March 31, 2011

Interest in
Reserves Heldby EquityMethod
Afﬁliates

Eurasia
Middle East &Asia & Oceania (Europe & NIS)
AfricaAmericas

Equity method
afﬁliates

Total

Japan

¥ 813,740¥128,638¥ 420,611¥178,294¥ 34,497¥15,037¥ 36,663(508,519)(19,129)(208,617)(48,858)(124,814)(3,314)(103,787)

797,080
134,197(27,919)
62,352
63,903(200,877)
2,146(86,445)

59,277
1,721
(150)
6,043
10,478(18,722)—(13,661)

299,991
63,518780(16,484)
29,153(50,824)(6,198)(44,791)

107,142
51,787(27,861)
56,464
17,841(14,988)
14,190(18,908)

179,087
8,690
6,911
4,590
2,729
(70,871)—(3,541)(2,782)
63
142
1,615
511
2,676
(5,846)(1,446)

154,364
8,418(7,741)
10,124
3,191(48,148)—(4,098)¥1,049,657¥154,495¥ 487,140¥315,103¥ 37,278¥ 6,656¥ 48,986

The following tables list average daily productions for crude oil, natural gas, and the total of crude oil and natural gas by region. The
proportional interests in production by our equity-method afﬁliates are not broken down by geographical regions. Our productions forthe year ended March 31, 2011 were 239.6 thousand barrels per day for crude oil, condensate and LPG, 1,102.5 million cubic feet per day
for natural gas and 423.3 thousand boe (Barrels of Oil Equivalent) per day in total.
Years ended March 31,

2007

2008

2009

2010

2011

Crude oil, condensate and LPG (Thousands of barrels per day):Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Subtotal
Proportional interest in production by equity-method afﬁliates
Total
Annual production (MMbbl)

3.9
40.4
47.9
82.3
0.1
174.7
67.8
242.5
88.5

4.9
36.5
54.5
80.7
0.4
177.0
64.6
241.5
88.4

4.9
44.7
24.8
81.0
2.7
158.1
65.1
223.2
81.5

4.5
47.7
26.9
73.3
5.5
158.0
60.4
218.3
79.7

3.9
65.1
27.9
73.0
2.3
172.2
67.4
239.6
87.5

127.8
865.8
—
—
57.5
1,051.1

164.9
842.8
—
—
82.3
1,090.0

1,051.1
383.6

161.5
845.7
—
—
81.6
1,088.8—
1,088.8
398.5

1,090.0
397.8

155.1
880.5
—
—
86.9
1,122.6—
1,122.6
409.7

128.7
836.0
—
—
81.1
1,045,956.6
1,102.5
402.4

25.2
184.7
47.9
82.3
9.7
349.8
67.8
417.7
152.5

31.9
177.4
54.5
80.7
14.0
358.4
64.6
423.0
154.8

32.4
185.1
24.8
81.0
16.4
339.7
65.1
404.9
147.8

30.4
194.5
26.9
73.3
20.0
345.1
60.4
405.4
148.0

25.3
204.4
27.9
73.0
15.8
346.5
76.8
423.3
154.5

Natural gas (Millions of cubic feet per day):Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Subtotal
Proportional interest in production by equity-method afﬁliates
Total
Annual production (MMbbl)
Crude oil and natural gas (Thousands of barrels of equivalent per day):Japan
Asia & Oceania
Eurasia (Europe & NIS)
Middle East & Africa
Americas
Subtotal
Proportional interest in production by equity-method afﬁliates
Total
Annual production (MMbbl)

Financial /Corporate Information

rate to estimated future pretax cash flows after provision fortaxes on the cost of oil and natural gas properties based upon
existing laws and regulations. The discount is computed byapplying a 10% discount factor to the estimated future net cash
ﬂows.
We believe that this information does not represent theNotes: 1. Reserves of the following blocks and fields include minority interests.
Asia & Oceania: Offshore Northwest Java (16.5%), Offshore Southeast Sumatra (16.5%)
Eurasia (Europe & NIS): ACG (49%), Kashagan (55%)
Middle East & Africa: Abu Al Bukhoosh (5%), West Bakr (47.3%)
Americas: Copa Macoya (30%)
2. Extensions, discoveries and improved recoveries includes Acquisition and sales.

098

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011099

Consolidated Balance Sheets
INPEX CORPORATION and Consolidated Subsidiaries
As of March 31, 2010 and 2011

Thousands of
U.S. dollars(Note 3)

Millions of yen

ASSETS

2010

2011

2011

Cash and cash equivalents¥ 216,395¥ 182,025$ 2,189,116

Accounts receivable—trade

88,364

95,391

1,147,216

Marketable securities (Note 5)

112,669

137,270

1,650,872

Inventories

12,322

12,138145,977

Deferred tax assets (Note 7)

5,356

9,451

113,662

Accounts receivable—other

43,161

57,033685,905

Other

14,611

12,766

153,530(23)(13,142)(158,052)

492,855

492,932

5,928,226

Buildings and structures (Note 6)

231,681

233,270

2,805,412

Wells (Note 6)

203,056

224,676

2,702,057

Machinery, equipment and vehicles (Note 6)

255,846

270,759

3,256,272

Land (Note 6)

20,79020,708249,044

Construction in progress

91,44775,078902,922

Other

60,774

86,1481,036,055

863,594

910,639

10,951,762(505,500)(530,777)(6,383,367)

358,094

379,8624,568,395

Tangible ﬁxed assets:

Less accumulated depreciation and amortization

LIABILITIES AND NET ASSETS

2010

2011

¥

¥

2011

Current liabilities:

Current assets:

Less allowance for doubtful accounts

Thousands of
U.S. dollars(Note 3)

Millions of yen

Accounts payable—trade
Short-term borrowings and current portion of
long-term debt (Notes 6 and 12)
Income taxes payable (Note 7)

16,602

23,441$

281,912

4,872

4,441

53,41086,535

113,102

1,360,217

Accounts payable—other (Note 6)

81,211

83,3091,001,912

Provision for exploration projects

15,324

9,537

114,696

132

128

1,539

Accrued bonuses to ofﬁcers
Asset retirement obligations (Note 15)

—

3,687

44,342

23,22917,084205,460

227,905

254,729

3,063,488

Long-term debt (Notes 6 and 12)

235,511

268,706

3,231,581

Deferred tax liabilities (Note 7)

27,13936,518439,182

Accrued retirement beneﬁts to employees (Note 14)

7,586

6,979

83,933Liabilities for site restoration and decommissioning costs

14,258——

Liabilities for losses on development activities

1,965

—

—

Other (Note 7)Long-term liabilities:

Accrued special repair and maintenance

442

443

5,328

Asset retirement obligations (Note 15)

—

8,966

107,829

Other (Note 6)
Total liabilities

8,369

6,656

80,048295,270

328,268

3,947,901

523,175

582,997

7,011,389

30,000290,810

3,497,415

Intangible assets:
108,123

101,362

1,219,026

Exploration and development rights

107,857

125,229

1,506,061

Mining rights

18,155

17,554

211,113

Other

5,070

4,966

59,723

239,205

249,1112,995,923

Investments and other assets:

Net assets (Note 9):
Common stock:
Authorized : 2010 — 9,000,001 shares2011 — 9,000,001 shares
Issued :2010 — 2,358,410 shares2011 — 3,655,810 shares
Capital surplus

418,478

679,288

8,169,429

936,745

1,047,431

12,596,885(5,248)(5,248)(63,115)

1,379,975

2,012,281

24,200,614

Unrealized holding gain on securities

12,351

1,456

17,511Retained earnings
Less : Treasury stock : 2010 — 4,916 shares2011 — 4,916 shares
Total shareholders' equity

Recoverable accounts under production sharing

514,646534,3316,426,109

Less allowance for recoverable accounts
under production sharing(94,892)(96,880)(1,165,123)

419,754437,451

5,260,986

Investment securities (Notes 5 and 6)

403,978975,541

11,732,303

Long-term loans receivable

18,641

13,979168,118

Translation adjustments(4,826)(16,847)(202,610)

Deferred tax assets (Note 7)

24,563

27,214327,288

Total accumulated other comprehensive income

7,525(15,391)(185,099)

Other investments (Note 6)

72,577

118,341

1,423,223

(641)

(270)

(3,247)Less allowance for doubtful accounts
Less allowance for investments in exploration
Total assets

Minority interests
Total net assets(15,248)(13,781)(165,737)

923,624

1,558,475

18,742,934

Contingent liabilities (Note 18)¥2,013,778¥2,680,380$32,235,478

Total liabilities and net assets

103,103

100,493

1,208,574

1,490,603

2,097,383

25,224,089¥2,013,778¥2,680,380$32,235,478

Financial /Corporate Information

Goodwill (Note 16)

See accompanying notes to consolidated financial statements.

100

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011101

Consolidated Statements of Income and Consolidated Statement of Comprehensive Income

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Income

INPEX CORPORATION and Consolidated Subsidiaries

INPEX CORPORATION and Consolidated Subsidiaries
For the years ended March 31, 2009, 2010 and 2011
Thousands of
U.S. dollars(Note 3)

Millions of yen

2009

Other expenses:
Interest expense
Equity in losses of afﬁliates
Provision for allowance for doubtful accounts
Provision for allowance for recoverable
accounts under production sharing
Provision for exploration projects
Provision for investments in exploration
Loss on valuation of investment securities
Loss on adjustment for changes of accounting
standard for asset retirement obligations (Note 15)
Foreign exchange loss
Other
Income before income taxes and minority interests
Income taxes (Note 7):
Current
DeferredIncome before minority interests
Minority interests
Net income (Note 10)

2011

2011

¥1,076,165
319,038
757,127
25,98250,683
17,195663,267¥840,427
298,168
542,259
15,711
44,86920,011
461,668¥943,080
334,833
608,247
12,00044,254
22,250529,743$11,341,912
4,026,855
7,315,057
144,317532,219
267,589
6,370,932

9,536
12,338
946
—
—
9,215
32,035

4,354
9,476
—
—
—
7,643
21,473

4,110
5,722
4,934
3,644
7,334
5,432
31,17649,42968,81559,33943,82488,20265,328374,937

3,934
—
—

1,275
1,920
—

1,074
—
9,133

12,916—
109,838

16,643

6,028

11,481138,076

3,387—
31,799

8,595
5,408
—

3,082
—
—

37,066
—
—

—

—

1,555

18,701

14,571
8,801
79,135616,167

13,264
4,624
41,114442,027

11,54014,46752,332508,587

138,785
173,987
629,369
6,116,500

488,262(17,884)
470,378—726¥ 145,063

322,993
2,133
325,126—
9,691¥107,210

367,083
1,614
368,697
139,890
11,191¥128,699

4,414,708
19,411
4,434,119
1,682,381
134,588$ 1,547,793

INPEX CORPORATION and Consolidated Subsidiaries
For the year ended March 31, 2011

Millions of yen

Income before minority interests
Other comprehensive income
Unrealized holding loss on securities
Translation adjustments
Share of other comprehensive income of associates accounted
for by the equity method
Total other comprehensive income (Note 8)
Comprehensive income (Note 8)
Total comprehensive income attributable to:Shareholders of INPEX CORPORATION
Minority interests

102

INPEX CORPORATION Annual Report 2011

Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders' equity
Unrealized holding gain (loss)
on securities
Unrealized gain (loss) fromhedging instruments
Translation adjustments
Total valuation, translation
adjustments and others
Minority interests
Total net assets¥

30,000418,494
718,616(2,215)
1,164,895¥——(18,846)—(18,846)¥——
145,063—
145,063¥———(3,563)(3,563)

¥ —
(16)
—
530
514

(60)

—

—

(7,524)——81,442¥1,238,813—¥(18,846)—¥145,063—¥(3,563)—¥514

For the year ended March 31, 2010

Balance
as of March 31,
2009

¥

—
—
—
—
—

¥

—
(16)
126,217(3,033)
123,168¥

30,000418,478
844,833(5,248)1,288,063(7,468)

—

—

—

—

650

650

(6,818)

4

—

—

—

—

(5)

(5)

(1)

—

—

(10,061)(10,061)(10,121)——(9,416)(9,416)(16,940)

9,496
80

9,496
¥123,248

90,938¥1,362,061¥

Millions of yen

Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders' equity
Unrealized holding gain (loss)
on securities
Unrealized gain (loss) fromhedging instruments
Translation adjustments
Total valuation, translation
adjustments and others
Minority interests
Total net assets¥

30,000418,478
844,833(5,248)1,288,063

For the year ended March 31, 2011

Balance
as of March 31,
2010

Cash
dividends paid

Net changes in items
other than those inshareholders' equity

Net income¥——(15,298)—(15,298)¥——
107,210—
107,210¥

Total changes
during theperiod

—
—
—
—
—

¥

—
—
91,912—
91,912

Balance
as of March 31,
2010¥

30,000418,478
936,745(5,248)1,379,975(6,818)——

19,16919,16912,351

(1)

—

—

1

1

—

(10,121)

—

—

5,295

5,295

(4,826)(16,940)——

24,46524,465

7,525

90,938¥1,362,061—¥(15,298)—¥107,210

12,165¥36,630

12,165¥128,542

103,103¥1,490,603
Millions of yen

Consolidated Statement of Comprehensive Income

See accompanying notes to consolidated financial statements.

For the year ended March 31, 2009

Thousands of
U.S. dollars(Note 3)

2011

2011

¥139,890$1,682,381(10,951)(11,516)(131,702)(138,496)(2,717)(32,676)(25,184)
114,706(302,874)
1,379,507

105,783¥ 8,923

Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders' equity
Unrealized holding gain (loss)
on securities
Translation adjustments
Total accumulated othercomprehensive income
Minority interests
Total net assets

1,272,195$ 107,312¥

Issuance of
new shares

Cashdividends paid¥——
(18,013)—(18,013)

Net income¥——
128,699—
128,699

Net changes in items
other than those inshareholders' equity¥

Total changes
during theperiodBalance
as of March 31,
2011

—
—
—
—
—

¥260,810
260,810
110,686—
632,306¥ 290,810
679,288
1,047,431(5,248)2,012,281

30,000418,478
936,745(5,248)1,379,975¥260,810
260,810——521,620

12,351———(10,895)(10,895)

1,456(4,826)———(12,021)(12,021)(16,847)

7,525

—

—

—

(22,916)(22,916)(15,391)

103,103¥1,490,603—¥521,620—¥(18,013)—¥128,699(2,610)¥(25,526)(2,610)¥606,780

100,493¥2,097,383

Thousands of U.S. dollars (Note 3)
Balance
as of March 31,
2010

Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders' equity
Unrealized holding gain (loss)
on securities
Translation adjustments
Total accumulated othercomprehensive income
Minority interests
Total net assets$

Issuance of
new shares

Cashdividends paid$——
(216,633)—(216,633)

Net income$——
1,547,793—
1,547,793

Net changes in items
other than those inshareholders' equity$

Total changes
during theperiodBalance
as of March 31,
2011

—
—
—
—
—

$3,136,621
3,136,621
1,331,160—
7,604,402$ 3,497,415
8,169,429
12,596,885(63,115)
24,200,614

360,794
5,032,808
11,265,725(63,115)
16,596,212$3,136,621
3,136,621——
6,273,242

148,539———(131,028)(131,028)

17,511(58,040)———(144,570)(144,570)(202,610)

90,499———(275,598)(275,598)(185,099)

1,239,964$17,926,675—$6,273,242—$(216,633)—$1,547,793(31,390)$(306,988)(31,390)$7,297,414

1,208,574$25,224,089

Financial /Corporate Information

Net sales
Cost of sales
Gross proﬁt
Exploration expenses
Selling, general and administrative expenses (Notes 13, 14 and 16)
Depreciation and amortization
Operating income
Other income:Interest income
Dividend income
Equity in earnings of afﬁliates
Gain on change in equity
Gain on transfer of mining rights
Other

2010

Millions of yen
Balance
Balance
Disposal Net changes in items Total changes
Cash
Purchase ofduring theas of March 31,
as of March 31,
Net income
treasury other than those individends paid
treasury stock
shareholders' equity
period
2009
2008
stock

See accompanying notes to consolidated financial statements.

INPEX CORPORATION Annual Report 2011103

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

INPEX CORPORATION and Consolidated Subsidiaries
For the years ended March 31, 2009, 2010 and 2011

INPEX CORPORATION and Consolidated Subsidiaries

Cash ﬂows from operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Amortization of goodwill
Loss on adjustment for changes of accounting standard for asset
retirement obligations
Provision for allowance for doubtful accounts
Provision for allowance for recoverable accounts under
production sharing
Provision for exploration projects
Provision for accrued retirement beneﬁts to employees
Provision for site restoration and decommissioning costs
Other provisions
Interest and dividend income
Interest expense
Foreign exchange loss (gain)
Equity in (earnings) losses of afﬁliates
Gain on transfer of mining rights
Gain on the sales of investment securities
Loss on the valuation of investment securities
Recovery of recoverable accounts under production sharing(capital expenditures)
Recoverable accounts under production sharing(operating expenditures)
Accounts receivable—trade
Inventories
Accounts payable—trade
Accounts receivable—otherAccounts payable—other
Advances received
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash ﬂows from investing activities:
Payments for time deposits
Proceeds from time deposits
Payments for long-term deposits
Payments for purchases of tangible ﬁxed assets
Proceeds from sales of tangible ﬁxed assets
Payments for purchases of intangible assets
Payments for purchases of marketable securities
Proceeds from sales and redemptions of marketable securities
Payments for purchases of investment securities
Proceeds from sales and redemptions of investment securities
Investment in recoverable accounts under production sharing(capital expenditures)
Decrease in short-term loans receivable
Long-term loans madeCollection of long-term loans receivable
Payments for purchase of mining rights
Proceeds from transfer of mining rights
Other
Net cash used in investing activities
Cash ﬂows from ﬁnancing activities:
Proceeds from issuance of common stock
Increase (decrease) in short-term loans
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from minority interests for additional shares
Purchases of treasury stock
Cash dividends paid
Dividends paid to minority shareholders
Other
Net cash provided by (used in) ﬁnancing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Increase in cash and cash equivalents from newly consolidated subsidiary
Cash and cash equivalents at end of the year
See accompanying notes to consolidated financial statements.

104

INPEX CORPORATION Annual Report 2011

2009

2010

2011

2011

¥ 616,167
42,9676,760¥ 442,027
40,354
6,759¥ 508,587
54,245
6,760$ 6,116,500
652,375
81,299

—

—

1,555

18,701——

12,925

155,442

20,3107,431

15,320184,245(2,320)
(97)
1,598
3,468
(21,874)
3,934
10,087(947)—(81)
31,799

7,361
(902)
60
4,484
(13,830)
1,275
2,380
1,920
—
—
—

(5,442)(593)—(1,462)(9,832)
1,074(3,015)(4,934)(7,334)——(65,448)(7,132)—(17,583)(118,244)
12,916(36,260)(59,339)(88,202)——45,72545,65350,817611,149(27,020)(14,996)(17,369)(208,887)

44,2002,348(9,825)27,558(47,813)
4,229(6,489)744,684
21,258(4,801)(530,789)
230,352(14,639)
5,844
4,719
(9,671)
13,670(1,120)3,357
532,136
16,170(1,734)(305,199)
241,373(11,376)
(223)
7,278
7,694
9,699
(2,490)(595)
611,289
13,079(748)(349,526)
274,094(136,813)(2,682)87,52992,532
116,645(29,946)(7,155)
7,351,642
157,294(8,996)(4,203,560)
3,296,380(6,464)
4,498—(88,611)
246(2,865)(19,082)
111,451(137,447)
16,531(9,925)8,430—(87,549)
86(991)—
101,321(156,264)
—

(493)
3,849
(53,500)(84,236)
1,072(2,535)(11,731)112,000(724,635)
10,847(5,929)46,290(643,415)(1,013,061)
12,892(30,487)(141,082)
1,346,963(8,714,793)
130,451(108,294)(91,650)(77,865)(936,440)

71(5,896)762——(5,068)(240,168)

77(7,521)
34——(7,860)(251,812)

1,570(1,134)567(28,045)
7,334
2,424
(844,511)

18,882(13,638)
6,819(337,282)
88,202
29,152(10,156,476)—
20,934
12,041(66,365)
9,370(3,049)(18,833)(82)(106)(46,090)(3,519)(59,425)
222,270—¥ 162,845—(20,121)
108,063(5,284)
4,704—(15,306)(2,973)(146)
68,937(4,948)53,550162,845—¥ 216,395

521,620—
56,285(4,713)
6,418—(18,010)(13,450)(93)548,057(12,015)(34,375)
216,395
5¥ 182,025

6,273,242—
676,909(56,681)
77,186—(216,597)(161,756)(1,118)6,591,185(144,498)(413,409)
2,602,465
60$ 2,189,116

1. BASIS OF PRESENTATIONINPEX CORPORATION (the "Company") is primarily engaged in the
research, exploration, development and production of natural gas
and crude oil.
The Company and its domestic subsidiaries maintain theiraccounting records and prepare their financial statements inaccordance with accounting principles generally accepted in Japan.
The accompanying consolidated financial statements have been
prepared by using the accounts of foreign consolidated subsidiaries
prepared in accordance with International Financial ReportingStandards, or IFRS or the accounting principles generally accepted in
the United States, or U.S. GAAP as adjusted for certain items.
The accompanying consolidated financial statements havebeen prepared in accordance with accounting principles generally
accepted in Japan, which may differ in certain material respects fromIFRS or U.S. GAAP, and are compiled from the consolidated ﬁnancial
statements prepared by the Company as required by the Financial
Instruments and Exchange Act of Japan.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of consolidation and accounting forinvestments in afﬁliates
The accompanying consolidated financial statements include theaccounts of the Company and companies controlled directly or
indirectly by the Company. Companies over which the Company
exercises significant influence in terms of their operating andﬁnancial policies are included in the consolidated ﬁnancial statements
on an equity basis. All significant intercompany balances andtransactions are eliminated in consolidation. Further, because certain
companies do not have a significant impact on the consolidated
ﬁnancial statements, these are not consolidated or accounted for by
the equity method.
For the 39 companies for which the closing date differed from theconsolidated closing date, including but not limited to, INPEX Sahul,Ltd. and INPEX Masela, Ltd., the financial statements for the year
ended December 31 were used. However, the necessary adjustments
have been made to the ﬁnancial statements of those companies toreflect any significant transactions made between the Company's
closing date and those of the consolidated subsidiaries.
For the 8 companies, including but not limited to, Japan Oil
Development, Co., Ltd., Teikoku Oil D.R. Congo, Co., Ltd., INPEXSouthwest Caspian Sea, Ltd., and INPEX North Caspian Sea, Ltd., theﬁnancial statements for the year ended on the consolidated closing
date were used, even though their closing date is December 31.
Teiseki Real Estate Co., Ltd., changed the closing date from
December 31 to March 31, since the year ended March 31, 2010.
Accordingly, the consolidated operating results for the year ended
March 31, 2010 included operating results for 15 months fromJanuary 1, 2009 to March 31, 2010. The effect of this change
does not have a significant impact on the consolidated financial
statements. On April 1, 2010, Teiseki Real Estate Co., Ltd. mergedwith INPEX Service Ltd. which had been the Company's consolidated
subsidiary and was renamed INPEX Business Service Ltd..
The excess of cost over underlying net assets excluding minority
interests at fair value as of their dates of acquisition is accounted foras goodwill and amortized over 20 years on a straight-line method.

(b) Cash equivalents
All highly liquid investments with a maturity of three months or lesswhen purchased are considered cash equivalents.

(c) Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies aretranslated into yen at the exchange rates prevailing at the balance
sheet date. All revenues and expenses associated with foreign
currencies are translated at the rates of exchange prevailing whensuch transactions were made. The resulting exchange gain or loss iscredited or charged to income.
The assets and liability accounts of overseas subsidiaries aretranslated into yen at the exchange rates prevailing at the balance
sheet date. The revenue and expense accounts of the overseas
subsidiaries are translated into yen at the average rates of exchange
during the period. The components of net assets excluding minority
interests are translated at their historical exchange rates. The
differences arising from the translation are presented as translation
adjustments and minority interests in the accompanying consolidated
ﬁnancial statements.

(d) Securities
In general, securities are classified into three categories: trading,held-to-maturity or other securities. Securities held by the Company
and its subsidiaries are all classified as other securities. Other
securities with a determinable market value are mainly stated at fairvalue with any changes in unrealized holding gain or loss, net ofthe applicable income taxes, included directly in net assets. Other
securities without a determinable market value are stated at cost.
Cost of securities sold is determined by the moving average method.

(e) Inventories
Overseas inventories are carried mainly at cost, determined by theaverage cost method (balance sheet value is carried at the lowerof cost or market). Domestic inventories are carried mainly at cost,
determined by the moving-average method (balance sheet value iscarried at the lower of cost or market).

(f) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amountdetermined based on the historical experience of bad debt withrespect to ordinary receivables, plus an estimate of uncollectible
amounts determined by reference to specific doubtful receivablesfrom customers experiencing ﬁnancial difﬁculties.

Financial /Corporate Information

Thousands of
U.S. dollars(Note 3)

Millions of yen(g) Recoverable accounts under production
sharing and related allowance
Cash investments made by the Company during an exploration,
development and production project under a production sharing
contract are recorded as "Recoverable accounts under production
sharing" so long as they are recoverable under the terms of therelevant contract. When the Company receives natural gas andcrude oil in accordance with the relevant contract, an amountcorresponding to the purchase costs of the products (i.e., a cost
recovery portion of the investments) is released from this account.

INPEX CORPORATION Annual Report 2011105

(q) Hedge accounting

3. U.S. DOLLAR AMOUNTS

The simpliﬁed accounting method is applied to interest rate swaps. In
addition, the nominal amount of the derivative transaction is limited
to the scope of actual demand, and the Company does not engage
in speculative derivative transactions.

The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic computation only, at¥83.15=US$1.00, the approximate rate of exchange in effect on March 31, 2011. This translation should not be construed as a representationthat yen have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate.

(r) Research and development expenses
Research and development expenses are charged to income as
incurred.

4. STATUS OF FINANCIAL INSTRUMENTS(s) Income taxes(a) Policy regarding ﬁnancial instruments

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

The Company raises funds for oil and gas exploration, development
and production, construction or expansion of domestic pipelinesand LNG receiving terminal primarily from cash flow on hand andfrom bank loans. Oil and gas development projects are primarily
funded from long-term loans that the Company has secured from theJapan Bank of International Cooperation and Japanese commercial
banks. Japan Oil, Gas and Metals National Corporation has provided
guarantees for the principal on certain outstanding amounts of theCompany's long-term loans. The Development Bank of Japan andJapanese commercial banks have provided long-term loans for theconstruction or expansion of domestic pipelines and LNG receiving
terminal. The Company generally borrows with variable interest rates,
while some loans are with a fixed interest rate depending on thenature of each project.
Regarding ﬁnancing policy, the Company manages funds mainly
from cash on hand and government bonds, which are considered
to be of low-risk and high-liquidity. The Company does not engage
in speculative derivative transactions. However, the Company uses
derivative transactions to prevent risks hereinafter described below.

(h) Allowance for investments in exploration
The allowance for investments in exploration is provided for future
potential losses on investments in exploration companies at an
estimated amount based on the net assets of the investees.

(i) Provision for exploration projects
Provision for exploration projects is provided for future expendituresof consolidated subsidiaries at the exploration stage based on aschedule of investments in exploration.

(j) Accrued bonuses to ofﬁcers
Accrued bonuses to ofﬁcers are provided at the expected payment
amount for the ﬁscal year.

(k) Tangible ﬁxed assets (except leased assets)
Depreciation of overseas mining facilities is mainly computed by theunit-of-production method.
For other tangible fixed assets, the straight-line method ofdepreciation is applied. The useful lives of ﬁxed assets are based on
the estimated useful lives of the respective assets.

(l) Intangible assets (except leased assets)
Exploration and development rights at the exploration stage are
fully amortized in the year such rights are acquired, and those at the
production stage are amortized by the unit-of-production method.
Mining rights are amortized mainly by the unit-of-production
method.
Capitalized computer software costs are amortized over a periodof ﬁve years.
Other intangible assets are amortized by the straight-line method.

(m) Leased assets
Leased assets are amortized by the straight-line method overthe lease period assuming no residual value.

(n) Accrued retirement beneﬁts to employees
Accrued retirement benefits to employees are provided at theamount calculated based on the expected retirement benefit
obligation and the fair value of pension plan assets at the end of
this period. Because certain subsidiaries are classified as small
enterprises, we employ a simplified method (at the amount which
would be required to be paid if all active employees voluntarily
terminated their employment as of the balance sheet date) for the
calculation of the retirement beneﬁt obligation of the subsidiaries.
Actuarial gains and losses are charged or credited to income as
incurred.

(o) Asset retirement obligations
Asset retirement obligations are provided by a reasonable estimateof retirement costs incurred upon termination of the operation withrespect to oil and gas production facilities in case that the Company
is obliged to retire such facilities by oil and gas contracts or laws andregulations with the countries in which the Company operates or has
working interests.

(p) Accrued special repair and maintenance(t) Adoption of new accounting standard
Effective the ﬁscal year ended March 31, 2010, the Company applies"Accounting Standard for Financial Instruments" (ASBJ Statement
No.10, issued on March 10, 2008) and "Guidance on Disclosuresabout Fair Value of Financial Instruments" (ASBJ Guidance No.19,
issued on March 10, 2008).
Effective the fiscal year ended March 31, 2011, the Company
applies "Accounting Standard for Asset Retirement Obligations"(ASBJ Statement No. 18, issued on March 31, 2008) and the"Guidance on Accounting Standard for Asset Retirement
Obligations" (ASBJ Guidance No. 21 issued on March 31, 2008).
Pursuant to these standards, the Company has reversed liabilities forsite restoration and decommissioning costs which had been recorded
as a provision for future costs expected to incur in accordance withthe schedule for site restoration and decommissioning. As a result,operating income decreased by ¥141 million ($1,696 thousand) andincome before income taxes and minority interests decreased by¥1,046 million ($12,580 thousand), respectively.
Effective the fiscal year ended March 31, 2011, the Company
applies "Accounting Standard for Equity Method of Accounting forInvestments" (ASBJ Statement No. 16, issued on March 10, 2008)
and the "Practical Solution on Unification of Accounting Policies
Applied to Associates Accounted for Using the Equity Method" (ASBJ
PITF No. 24, issued on March 10, 2008). There is no impact on the
consolidated ﬁnancial statements as a result of this change.
Effective the fiscal year ended March 31 2011, based on the"Accounting Standard for Consolidated Financial Statements" (ASBJ
Statement No. 22, issued on December 26, 2008), the Company
applies "Cabinet Office Ordinance Partially Revising Regulation
for Terminology, Forms and Preparation of Financial Statements"(Cabinet Office Ordinance No.5, issued on March 24, 2009). As
a result, "Income before minority interests" is included in the
consolidated ﬁnancial statement for the year ended March 31, 2011.
Effective the fiscal year ended March 31, 2011, the Company
applies "Accounting Standard for Presentation of Comprehensive
Income" (ASBJ Statement No.25, issued on June 30, 2010). The
amount of “Total valuation, translation adjustments and others” as ofMarch 31, 2010 on balance sheet is presented as “Total accumulated
other comprehensive income.”
However, the amount of "Total accumulated other comprehensive
income" for the year ended March 31, 2010 is shown as "Total
valuation, translation adjustments and others".
Effective the fiscal year ended March 31, 2011, the Company
applies "Accounting Standard for Disclosures about Segments of anEnterprise and Related Information" (ASBJ Statement No.17, issued
on March 27, 2009) and the "Guidance on the Accounting Standard
for Disclosures about Segments of an Enterprise and RelatedInformation" (ASBJ Guidance No.20, issued on March 21, 2008).

(Interest rate ﬂuctuation risk related to short-term loans andlong-term debt)
Loans are mainly used to fund oil and natural gas exploration projects
and the construction or expansion of domestic pipelines and LNG
receiving terminal and others. The borrowing period is determinedconsidering the ﬁnancial prospects of the project and useful lives ofthe facilities. Loans with variable interest rates are exposed to interest
rate fluctuation risk. However, the Company leverages in line withthe above policy. Loans with ﬁxed interest rates include ﬁxed interest
expenses under special treatment of interest rate swaps.

(Exchange rates ﬂuctuation risk related to assets and liabilities
in foreign currencies)

Trade receivables—accounts receivable-trade and accounts
receivable-other—are comprised mainly from sales of oil and naturalgas. Main trading partners are national oil companies, major oilcompanies and others. In line with the criteria for trading and credit
exposure management, the Company properly analyzes the status oftrading partners for early detection and reduction of default risks.

As most of the Company's business consists of its overseas business,
the Company is exposed to exchange ﬂuctuation risk due to a large
portion of monetary assets and liabilities held in foreign currencies
such as cash and deposits, accounts receivables and loans requiredin overseas projects. As a result of fiscal year-end conversion, yen
appreciation causes a foreign exchange loss on assets and a foreignexchange gain on liabilities while yen depreciation causes a foreignexchange gain on assets and a foreign exchange loss on liabilities.
For this reason, foreign exchange gains and losses are largely offset
and the position between assets and liabilities in foreign currencies
is maintained. At present, the Company is in the position of incurring
foreign exchange losses when the foreign exchange rate resultsin yen appreciation. The Company timely converts to yen to avoid
excess holding of foreign currency deposits on hand and engages
in hedging transactions, based on the Company policy, partly
using foreign currency forward exchange contracts as necessary for
expected foreign currency trading.

(Market price ﬂuctuation risk related to securities)(Management of derivative transactions)

For marketable securities and investment securities exposed tomarket price fluctuation risk, analysis of market values is regularly
reported to the Management Committee. For shares of stock, theCompany holds shares of trading partners and others to establish
close and smooth relationships for the purposes of maintaining a
medium- to long-term stable business. Of these shares, the Company
holds a part of these shares for the purpose of investment. As forbonds, the Company mainly holds government bonds with shortterm maturities to reduce market price ﬂuctuation risk.

For the above derivative transactions such as interest rate swap
transactions and forward exchange contracts, the Company follows
its derivative transactions management outline. Further, the Company
only transacts with financial institutions with high credit ratings to
reduce credit risks for the use of derivatives.

(b) Details of ﬁnancial instruments,
associated risk and risk management(Credit risks related to trade receivables)(Management of the liquidity risk related to ﬁnancing)
The finance unit controls cash management based on a monthly
financing plan prepared by each project division and secures
sufﬁcient liquidity on hand to be prepared for liquidity risks.

Financial /Corporate Information

Because these investments are recoverable only where commercial
oil or gas is discovered, an allowance for recoverable accounts
under production sharing is provided for probable losses oninvestments made during the exploration stage under production
sharing contracts arising from the failure to discover commercial oil
and gas. In light of this uncertainty, an allowance for recoverable
accounts under production sharing is provided for probable losses ondevelopment investment individually estimated for each project.

Accrued special repair and maintenance are provided for planned
major repair and maintenance activities on tanks in certain
subsidiaries at amounts accumulated through the next activity.

106

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011107

5. SECURITIES

These securities are not included in (a) as they are assumed to have no market value and it is extremely difﬁcult to determine their fair value. For
shares of exploration companies among unlisted securities and stocks of subsidiaries and afﬁliates, an allowance is provided for investments in
exploration at an estimated amount based on the ﬁnancial position of the investees.

(a) Information regarding other securities as of March 31, 2010 and 2011 is as follows:
Millions of yen
Acquisition cost

March 31, 2010

Securities with fair values exceeding their acquisition cost:
Stock
Bonds:
Public bonds
OthersSubtotal
Securities with acquisition costs exceeding their fair value:
Stock
Bonds:
Public bonds
Other debt securities
Subtotal
Total
Millions of yen
March 31, 2011

Acquisition cost

Unrealized gain
(loss)

Carrying value

Securities with fair values exceeding their acquisition cost:¥ 42,521¥ 49,877
Stock
Bonds:
336,349
336,983
Public bonds
8,500
8,503
Corporate bonds
6,733
7,694
Others394,103
403,057
Subtotal
Securities with acquisition costs exceeding their fair value:
10,535
8,664
Stock
Bonds:
374,128
372,900
Public bonds
28,50928,334
Corporate bonds
33,86832,942Other debt securities
198,255
195,213
Others645,295
638,053
Subtotal¥1,039,398¥1,041,110
Total(d) Redemption schedule for securities with maturity dates classiﬁed as other securities as of March 31, 2011 is as follows:
Unrealized gain
(loss)

Carrying value¥ 28,825¥ 43,779¥14,954

266,324
6,733
301,882

267,953
8,722
320,454

1,629
1,989
18,572

26,87322,396(4,477)103,00740
129,920¥431,802

101,42337
123,856¥444,310(1,584)(3)(6,064)¥12,508

Thousands of U.S. dollars
Unrealized gain
Acquisition cost
Carrying value(loss)¥ 7,356$

511,377$

599,844$ 88,467

634
3
961
8,954

4,045,087
102,225
80,974
4,739,663

4,052,712
102,261
92,531
4,847,348

7,625
36
11,557
107,685(1,871)

126,699

104,197(22,502)(1,228)(175)(926)(3,042)(7,242)¥ 1,7124,499,435
342,862
407,3122,384,306
7,760,614$12,500,277

4,484,666
340,758
396,176
2,347,721
7,673,518$12,520,866(14,769)(2,104)(11,136)(36,585)(87,096)$ 20,589

Millions of yen

March 31, 2011

Bonds:
Public bonds
Corporate bonds
Other debt securities
OthersTotal

1 year or lessMore than 1
year but lessthan 5 years¥133,000
3,500——¥136,500¥526,500
33,50033,445
198,146¥791,591

Thousands of U.S. dollars

More than 5More than 10
years but lessyears
than10 years¥41,500———¥41,500

1 year or lessMore than 1
year but lessthan 5 years$1,599,519
42,093——$1,641,612$6,331,930
402,886
402,225
2,382,995$9,520,036

¥—
—
—
—
¥—

More than 5More than 10
years but lessyears
than10 years$499,098———$499,098

$—
—
—
—
$—

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of March 31, 2010 and 2011 are as follows:
Millions of yen
March 31,

Short-term borrowings from banks and others(Interest rates ranging from 1.215% to 1.325% and from1.037% to 1.325% at March 31, 2010 and 2011)
Total

Thousands of U.S. dollars

2010

2011

2011

¥160

¥160

$1,924¥160¥160$1,924Long-term debt as of March 31, 2010 and 2011 is as follows:
Millions of yen
March 31,

Loans from banks and others, due through 2025
(Interest rates ranging from 0.473% to 2.700% and from0.776% to 2.700% at March 31, 2010 and 2011)
Less: Current portion

Thousands of U.S. dollars

2010

2011

2011

¥ 240,223¥272,987$3,283,067

4,712¥ 235,511

4,281¥268,706

51,486$3,231,581(b) Information regarding sales of securities classiﬁed as other securities for the years ended March 31, 2009, 2010 and 2011 is as follows:

Proceeds from sales
Gain on sales
Loss on sales¥ 127,974
107¥—
Millions of yen

March 31,

Thousands of U.S. dollars

2010

2011
Gain on
sales

2011

Proceeds
from sales

Gain onsales

Loss on
sales

Stock
¥
—
Bonds:
Public bonds
101,000
Other debt securities
321
Total
¥101,321

¥—

¥—

¥

767

¥138

¥ 55

$

9,224

$1,660

$ 662

—
—
¥—

—
—
¥—

10,080—¥10,847

—
—
¥138

385
—
¥440

121,227—$130,451——$1,6604,630—$5,292Years ended March 31,

Proceeds
from sales

Loss onsales

Proceeds
from sales

Gain onsales

Assets pledged as of March 31, 2010 and 2011 are as follows:
Millions of yen

2009

Loss onsales

Redemption and cancellation of bonds and others, which were previously included in sales proceeds are excluded from the proceeds from theyear ended March 31, 2011.
There were no proceeds from sales of other securities exclude redemption and cancellation of bonds and others for the year ended March 31,
2010.

Buildings and structures
Wells
Machinery, equipment and vehicles
Land
Investment securities
Other
Total

Thousands of U.S. dollars

2010

2011

2011

¥ 2,240
3,445
9,512
660
9,385
246
¥25,488¥ 2,141
4,774
9,049
660
8,237
239
¥25,100$ 25,749
57,414
108,827
7,938
99,0622,874$301,864

The above assets were pledged against the following liabilities:
Millions of yen
March 31,

Short-term loans
Accounts payable—other
Long-term debt
Other
Total

Thousands of U.S. dollars

2010

2011

2011

¥ 2,130
5,497
6,153
17
¥13,797¥ 2,130
3,993
4,023
17
¥10,163$ 25,616
48,022
48,382
205$122,225

Financial /Corporate Information

Millions of yen
Year ended March 31,

In addition, investment securities of ¥5,572 million as of March 31, 2010 and ¥4,928 million ($59,272 thousand) as of March 31, 2011 arepledged as collateral for the BTC Pipeline Project Finance.

(c) Components of securities for which it is extremely difﬁcult to determine fair value as of March 31, 2010 and 2011 are summarized as follows:
Millions of yen
March 31,

Other securities:
Unlisted securities
Preferred securities
Stocks of subsidiaries and afﬁliates
Total

108

INPEX CORPORATION Annual Report 2011

Thousands of U.S. dollars

2010

2011

2011

¥30,623
5,000
36,714¥72,337¥27,819
5,000
38,882¥71,701$334,564
60,132
467,613$862,309

The aggregate annual maturities of long-term debt subsequent to March 31, 2011 are summarized as follows:
Years ending March 31,

2012
2013
2014
2015
2016
2017 and thereafter
Total

Millions of yen

¥

4,281
4,662
3,757
5,609
5,128
249,550¥272,987

Thousands of U.S. dollars$

51,48656,06745,18367,456
61,6723,001,203$3,283,067

INPEX CORPORATION Annual Report 2011109

7. INCOME TAXES

8. COMPREHENSIVE INCOME

The Company and its domestic consolidated subsidiaries are subject to a number of taxes based on income which, in the aggregate, resulted ina statutory tax rate of approximately 36.2% for the ﬁscal years ended March 31, 2009, 2010 and 2011.
The effective tax rates reﬂected in the consolidated statements of income for the ﬁscal years ended March 31, 2009, 2010 and 2011 differ
from the statutory tax rate for the following reasons:Comprehensive income and other comprehensive income for the year ended March 31, 2010 are as follows:

Millions of yen

Year ended March 31, 2010

Years ended March 31,

2009

2010

2011

Comprehensive income attributable to shareholders of INPEX CORPORATION

Statutory tax rate
Effect of:Permanently non-taxable expenses such as entertainment expenses
Permanently non-taxable income such as dividends income
Valuation allowance
Foreign taxes
Foreign tax credits
Adjustment of deducted amounts of foreign taxes
Net operating losses utilized
Equity in (earnings) losses of afﬁliates
Amortization of goodwill
Differences of effective tax rates applied to tax effect accounting
Other
Effective tax rates

36.2%

36.2%

36.2%

Comprehensive income attributable to minority interests
Total

—
(1.4)
2.6
75.6
(18.4)(18.1)
—
(0.1)
0.4
—
(0.5)
76.3%

—
(1.5)
0.7
69.9
(20.1)(14.2)
(1.8)
0.2
0.6
2.8
0.8
73.6%

0.1
(0.8)
2.4
68.9
(18.8)(14.0)
(0.8)
(0.4)
0.5
(0.3)
(0.5)
72.5%

Deferred tax assets:
Investments in related parties
Loss on revaluation of land
Loss on valuation of investment securities
Recoverable accounts under production sharing (foreign taxes)
Allowance for investments in exploration
Foreign taxes payable
Net operating loss
Accumulated depreciation
Accrued retirement beneﬁts
Translation differences of assets and liabilities denominated in foreign
currencies
Liabilities for site restoration and decommissioning costs
Asset retirement obligations
Exploration expenses
Allowance for doubtful accounts
Other
Total gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Foreign taxes
Translation differences of assets and liabilities denominated in foreign
currencies
Reserve for overseas investment loss
Translation differences due to an application of purchase accounting
methodReserve for exploration
Unrealized holding gain on securities
Other
Total deferred tax liabilities
Net deferred tax assets

INPEX CORPORATION Annual Report 2011(b) Other comprehensive income

2010

2011

¥ 62,493
4,854
11,348
4,389
6,721
21,846
12,96424,787
2,773¥ 64,881
4,855
6,091
4,565
6,528
37,41525,28736,444
2,565

111

1,000

12,026

3,912
—
5,781
—
10,438172,417(138,382)
34,035

—
4,570
7,780
5,159
11,914
219,054(153,220)
65,834—54,961
93,56662,045
143,283
2,634,444(1,842,694)
791,750

7,558

32,883

395,466

Unrealized holding gain on securities¥19,1716,807
227¥26,205

Translation adjustments
Share of other comprehensive income of associates accounted for by the equity method
Total

2011
$

780,289
58,38873,25354,90178,509449,970
304,113438,292
30,848

As of March 31, 2011, the total number of the Company's sharesissued consisted of 3,655,809 shares of common stock and 1 specialclass share. A number of common stock increased by 1,297,400
shares from as of March 31, 2010 due to the offering new shares by
1,216,000 shares and the third-party allotment by 81,400 shares,
respectively.
The special class share has no voting rights at the commonshareholders' meeting, but the ownership of the special classshare gives its holder a right of veto over certain important mattersby imposing the requirement to obtain a class vote. However,requirements stipulated in the Articles of Incorporation need to be
met in cases involving the appointment or removal of directors, thedisposition of important assets or the exercise of the veto over;• Appointment and removal of directors• Disposition of all or part of the Company's material assets• Amendments to the Article of Incorporation with respect to (i) the
purpose of the Company's business and (ii) the granting of voting
rights to the Company's shares other than common stock

Yen

8,801

15,937

191,666

Years ended March 31,

6,541

78,665

Net income

2,894

2,429

29,212

Cash dividends

5,958
435
3,260
67,443¥ (1,609)$

71,654
5,231
39,206811,100(19,350)• Mergers, share exchanges or share transfers• Capital reduction• Dissolution
The special class shareholder may request the Company to acquire
the special class share. Besides, the Company may also acquire
the special class share by a resolution of a meeting of the Board of
Directors in case of that special class share is transferred to a nonpublic subject.
Under the Companies Act of Japan, 10% of the amount to be
distributed as dividends from capital surplus (other than capitalreserve) and retained earnings (other than legal reserve) should betransferred to capital reserve and legal reserve, respectively, up to
the point where total amount of capital reserve and the legal reserve
equals 25% of the common stock account.
Such distribution can be made at any time by a resolution of theshareholders, or by the Board of Directors if certain conditions aremet, but neither capital reserve nor legal reserve is available for
distributions.

10. AMOUNTS PER SHARE

7,098

4,499
390
2,788
34,028¥
7

Millions of yen

Year ended March 31, 2010

Net assets

U.S. dollars

2009

2010

2011

2011

¥ 61,601.60¥ 45,553.56¥ 40,832.40$ 491.07

8,000.00

5,500.00

6,000.00

72.16¥540,100.10¥589,548.88¥546,958.90$6,577.98

Net income per share is computed based on the net income available for distribution to shareholders of common stock and the average numberof shares of common stock outstanding during the year.
Cash dividends per share represent the cash dividends proposed by the Board of Directors together with the interim cash dividends paid.
Net assets per share are computed based on the net assets excluding minority interests and the number of common stock outstanding at theyear end.

INPEX CORPORATION Annual Report 2011

Financial /Corporate Information

Thousands of U.S.
dollars

Millions of yen
March 31,

¥131,675
11,431¥143,106

9. NET ASSETS

The signiﬁcant components of deferred tax assets and liabilities as of March 31, 2010 and 2011 are as follows:

110(a) Comprehensive income

11111. DERIVATIVES(b) Retirement beneﬁt expenses for the years ended March 31, 2009, 2010 and 2011 are as follows:

Fair value of derivatives
The special treatment of interest rate swaps and hedge accounting is applied to all derivative transactions as of March 31, 2010 and 2011. Fairvalues of derivatives are included in the estimated fair value of the long-term debt, as disclosed in Note 12.(a), since they are accounted for as apart of long-term debt.

Thousands of
U.S. dollars

Millions of yen
Years ended March 31,

2009

12. OTHER FINANCIAL INSTRUMENTS

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial gain or loss
Retirement beneﬁt expenses¥1,001282(86)
462¥1,659(a) The carrying value and estimated fair value of ﬁnancial instruments excluding securities and investment securities which are disclosed in Note5.(a) and derivatives which are disclosed in Note 11 as of March 31, 2010 and 2011 are as shown below. The following summary also excludes
cash and cash equivalents and accounts receivable-trade for which fair values approximate their carrying amounts.

Except for the above retirement beneﬁts expenses, in accordance with the change of retirement beneﬁt plan resulting from the merger of theCompany with non-surviving companies, past service gain amounting to ¥644 million was credited to other income (other) during the year
ended March 31, 2009.

Millions of yen

March 31,

Carrying value

Short-term borrowings and current
portion of long-term debt
Long-term debt

¥

4,872

¥235,511

2011

¥

4,935

¥237,024

2011

2011

¥ 830
288
(152)
134
¥1,100$ 9,982
3,464(1,828)1,611$13,229

4,441¥¥268,706(c) The assumptions used in accounting for the above plans are as follows:

2011
Estimated
fair value

Carrying value

¥

¥ 803
284
(33)
(310)
¥ 744

Thousands of U.S. dollars

2010
Estimated
fair value

2010

Carrying value

4,484

$

¥270,572

53,410$3,231,581

Estimated
fair value

Years ended March 31,$

Discount rate
Expected return on plan assets

53,927$3,254,023(b) For other ﬁnancial instruments, computation methods of estimated fair value are as shown below.

Period for amortization of actuarial gain or loss
Period for amortization of past service cost

2009

2010

2011

2.0%
0.5%
Amortized as
incurred
Amortized as
incurred

2.0%
0.5%
Amortized as
incurred

2.0%
2.0%
Amortized as
incurred—̶Millions of yen

Thousands of
U.S. dollars

Short-term borrowings and current portion of long-term debt
The estimated fair value of current portion of long-term debt is calculated by the same method as long-term debt. For short-term borrowings,
the relevant carrying value is used since these items are settled in a short periods of time and its fair value is almost the same as the carrying
value.

15. ASSET RETIREMENT OBLIGATIONSLong-term debt

The changes in asset retirement obligations for the year ended March 31, 2011 are as follows:

The estimated fair value of long-term debt is calculated by applying a discount rate to the total of principal and interest. The discount rate isbased on the assumed interest rate if a similar new loan is entered into.

2011

2011

¥ 16,564
1,281
714$199,206
15,406
8,587(5,320)(586)¥ 12,653(63,981)(7,047)$152,171

13. RESEARCH AND DEVELOPMENT EXPENSES

New obligations

Research and development expenses included in selling, general and administrative expenses amounted to ¥643 million, ¥470 million and ¥449
million ($5,400 thousand) for the years ended March 31, 2009, 2010 and 2011, respectively.

Spending on existing obligations

Accretion

Thousands of
U.S. dollars

March 31,

2010

2011

2011

Retirement beneﬁt obligations
Plan assets at fair value¥(15,379)
7,793¥(15,593)
8,614$(187,529)
103,596

Unfunded retirement beneﬁt obligation
Unrecognized actuarial gain or loss
Accrued retirement beneﬁts to employees(7,586)—¥ (7,586)(6,979)—¥ (6,979)(83,933)—$ (83,933)

INPEX CORPORATION Annual Report 2011

16. GOODWILL
The changes in the carrying amount of goodwill for the years ended March 31, 2009, 2010 and 2011 are as follows:
Thousands of U.S.
dollars

Millions of yen
Years ended March 31,

2009

2010

2011

Balance at beginning of the year
Goodwill acquired during the year
Amortization of goodwill
Balance at end of the year

¥ 121,644¥ 114,884(2)(6,759)¥ 108,123¥108,123(1)(6,760)¥101,362

̶
(6,760)¥ 114,884

2011$1,300,337(12)(81,299)$1,219,026

INPEX CORPORATION Annual Report 2011

Financial /Corporate Information(a) Retirement beneﬁt obligations as of March 31, 2010 and 2011 are as follows:
Millions of yen

Other (b)Balance at end of the year(a) The balance at beginning of the year indicates obligations occurred by applying “Accounting Standard for Asset Retirement Obligations”(ASBJ Statement No. 18 issued on March 31, 2008) and “Guidance on Accounting Standard for Asset Retirement Obligations” (ASBJ
Guidance No. 21 issued on March 31, 2008) at the beginning of the year ended March 31, 2011.
(b) "Other" mainly includes the changes in foreign currency exchange rates.

14. RETIREMENT BENEFITS

112

Year ended March 31,

Balance at beginning of the year (a)113

17. LEASES

Overseas sales

Future minimum lease payments subsequent to March 31, 2011 for operating lease transactions are summarized as follows:

Overseas sales, which include sales (other than exports to Japan) of its overseas subsidiaries, for the years ended March 31, 2009 and 2010 are
summarized as follows:(a) As lessee

Millions of yen

Years ending March 31,

Millions of yen

Thousands of U.S. dollars

20122013 and thereafterTotal¥ 3,476
13,589¥17,065$ 41,804
163,428$205,232

Asia & Oceania (a)Year ended March 31, 2009
Overseas sales
Consolidated net sales
Overseas sales as a percentage of consolidated net sales

Other (b)¥371,102¥46,281

34.5%

4.3%

Total

¥417,383
1,076,165
38.8%(a) Asia & Oceania: South Korea, Taiwan, Indonesia, Singapore, Thailand, China, Philippines, Australia(b) Other: USA(b) As lessor
Years ending March 31,

Millions of yen

2012
2013 and thereafter
Total

Thousands of U.S. dollars

¥ 79
249
¥328

$ 950
2,995
$3,945

Millions of yen
Asia & Oceania (a)Year ended March 31, 2010
Overseas sales
Consolidated net sales
Overseas sales as a percentage of consolidated net sales

Other (b)¥271,231¥53,425

32.3%

6.3%

Total

¥324,656
840,427
38.6%(a) Asia & Oceania: South Korea, Taiwan, Indonesia, Singapore, Thailand, Philippines, Australia(b) Other: USA, Italy

18. CONTINGENT LIABILITIES

Segment information for the year ended March 31, 2011
Overview of reportable segments

Segment information for the years ended March 31, 2009 and 2010

The reportable segments for the Group’s oil and gas development activities are components of individual mining area and others for which
separate financial information is available in order to make the Group management decisions by the Board of Directors. Since the Group
operates oil and gas businesses globally, the Group’s reportable segments are the mining areas and others by geographical region, categorized
by “Japan”, “Asia & Oceania” (mainly Indonesia, Australia and East Timor), “Eurasia (Europe & NIS)” (mainly Azerbaijan), “Middle East & Africa”(mainly UAE) and “Americas.”
The Company produces oil and natural gas in each segment. In addition, the Company conducts marketing activities for petroleum products
and others in “Japan” segment.

Business segment information

Basis of measurement for sales, income (loss), assets and other items by reportable segment

As net sales, operating income and total assets of the oil and natural gas business constituted more than 90% of the consolidated totals for theyears ended March 31, 2009 and 2010, the disclosure of business segment information has been omitted.

Accounting policies for the reportable segments are substantially the same as those described in “Note 2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES.”

Geographical segment information

Information on sales and income (loss), assets and other items by reportable segment

19. SEGMENT INFORMATION

The geographical segment information for the Company and its subsidiaries for the years ended March 31, 2009 and 2010 is summarized asfollows:
Millions of yen
Year ended March 31, 2009

Sales to third parties
Total sales
Operating expenses
Operating income (loss)
Total assets

Japan

Eurasia
Asia & Oceania(Europe & NIS)(a)(b)

¥ 93,423
93,42359,54033,883¥208,326¥435,824
435,824
150,416
285,408¥409,558¥ 73,688
73,68839,223
34,465¥365,914

Middle East
& Africa (c)Americas
(d)

Total

¥463,151
463,151
144,460
318,691¥189,270¥10,079
10,07911,419(1,340)¥85,169¥1,076,165
1,076,165
405,058
671,107¥1,258,237

Eliminations

¥

—
—
7,840
(7,840)¥509,808

Consolidated¥1,076,165
1,076,165
412,898
663,267¥1,768,045(a) Asia & Oceania: Indonesia, Australia, East Timor, Vietnam(b) Eurasia (Europe & NIS): Azerbaijan, Kazakhstan, UK(c) Middle East & Africa: UAE, D.R.Congo, Iran, Libya, Egypt, Algeria, Angola(d) Americas: Venezuela, Ecuador, USA, Canada, Suriname, Brazil

Reportable segments
Year ended March 31, 2011

Asia &
Oceania

Sales to third parties
Total sales
Segment income (loss)
Segment assets
Other items
Depreciation andamortization
Amortization of goodwill
Investment to associates
accounted for by theequity method
Increase of tangible ﬁxed
assets and intangible
assets¥104,525
104,525
25,959240,239¥406,828
406,828
235,814432,323¥ 68,319
68,31936,461
503,471¥350,735
350,735
243,113245,865¥12,673
12,673(3,035)68,023¥ 943,080
943,080
538,3121,489,921

18,457

17,469

9,013

5,112

2,914

(1)

—

—

—

(192)

—

20,067—

7,084¥ 25,697¥ 45,974¥ 28,362¥ 10,838

Year ended March 31, 2011

Japan

Asia &
Oceania

Year ended March 31, 2010

Sales to third parties
Total sales
Operating expenses
Operating income
Total assets

Eurasia
Asia & Oceania (Europe & NIS)(a)(b)

¥ 93,959
93,95961,40432,555¥240,879¥352,383
352,383
161,313
191,070¥451,167¥ 73,574
73,57433,80539,769¥446,849

Middle East
& Africa (c)Americas
(d)

Total

¥303,819
303,819
98,247
205,572¥229,843¥16,692
16,692
15,664
1,028¥85,242¥ 840,427
840,427
370,433
469,994¥1,453,980

Eliminations

¥

—
—
8,326
(8,326)¥559,798

Consolidated¥ 840,427
840,427
378,759
461,668¥2,013,778(a) Asia & Oceania: Indonesia, Australia, East Timor, Vietnam(b) Eurasia (Europe & NIS): Azerbaijan, Kazakhstan, UK(c) Middle East & Africa: UAE, D.R.Congo, Iran, Libya, Egypt, Algeria, Angola(d) Americas: Venezuela, Ecuador, USA, Canada, Suriname, Brazil
The geographical segment information for the Company and its subsidiaries has been reflected in the regions based on the location ofoperations.

114

INPEX CORPORATION Annual Report 2011

Eurasia
Middle East &(Europe & NIS)
AfricaSales to third parties
Total sales
Segment income (loss)
Segment assets
Other items
Depreciation andamortization
Amortization of goodwill
Investment to associates
accounted for by theequity method
Increase of tangible ﬁxed
assets and intangible
assets$1,257,065
1,257,065
312,195
2,889,224$4,892,700
4,892,700
2,836,007
5,199,315$ 821,636
821,636
438,497
6,054,973$4,218,100
4,218,100
2,923,788
2,956,885

221,972

210,090108,395

61,47935,045636,981

15,394652,375

(12)

—

—

—

(2,309)(2,321)

83,62081,299—241,335—

85,19561,576388,106—

388,106$ 309,044$ 552,904$ 341,094$ 130,343

Americas

Adjustments
(a)

Total

¥

Consolidated(b)——(8,569)1,190,459¥ 943,080
943,080
529,7432,680,380

52,965

1,280

54,245

(193)

6,953

6,760

5,120

32,271—

32,271¥2,929¥ 113,800

566¥ 114,366¥

Reportable segments

Millions of yen
JapanMillions of yen

Japan

Thousands of U.S. dollars

Eurasia
Middle East &(Europe & NIS)
AfricaAmericasTotal$152,411 $11,341,912
152,411 11,341,912(36,500)
6,473,987
818,076 17,918,473

Adjustments(a)Consolidated(b)$$ 35,226 $ 1,368,611 $— $11,341,912— 11,341,912(103,055)
6,370,932
14,317,005 32,235,478

Financial /Corporate Information

As of March 31, 2011, the Company and its consolidated subsidiaries were contingently liable as guarantors of indebtedness of afﬁliates in theaggregate amount of ¥28,070 million ($337,583 thousand).

6,807 $ 1,375,418(a) Adjustments include elimination of inter-segment transactions and corporate incomes, expenses and assets that are not allocated to areportable segment.
(b) Segment income is reconciled with operating income on the consolidated statements of income.

INPEX CORPORATION Annual Report 2011115

Report of Independent Auditors

Products and service information:
Sales

Millions of yen

Thousands of U.S. dollars

Year ended March 31,

2011

Crude oil
Natural gas (excluding LPG)

¥557,911
334,650$ 6,709,693
4,024,654

2011

LPG
Other
Total

21,59728,922¥943,080

259,736
347,829$11,341,912

Geographical information:
Sales

Millions of yen

Year ended March 31,

2011

Japan
Asia & Oceania
OthersTotal¥573,132
346,717
23,231¥943,080

Tangible ﬁxed assets

Millions of yen

As of March 31,

2011

Japan
Australia
OthersTotal¥211,088
96,50072,274¥379,862

Thousands of U.S. dollars

2011$ 6,892,748
4,169,777
279,387$11,341,912

Thousands of U.S. dollars

2011$2,538,641
1,160,553
869,200$4,568,394

Information by major customer:
Sales from a single group of external customers amounted to ¥254,542 million ($3,061,239 thousand) arising from sales by the Asia & Oceania
segment for the year ended March 31, 2011.

20. RELATED PARTY TRANSACTIONSThere was the following related party transaction for the year ended March 31, 2009:

Afﬁliated company
Name of relatedparty

MI Berau B.V.

Transaction
detailAmounts

Serve the ofﬁcer Guarantee for
Exploration and development of natural gas inDirectly
Amsterdam, ½656,279
concurrently,
debt in U.S.
Berau Block conducted in West Papua province,
44.00%
Netherlands thousand
capital subscription
dollars *Indonesia and Tangguh LNG Project¥ 20,380
millionLocation

Capitalinvestment

Nature of operations

Description of the
Votinginterest business relationship* The Company guarantees financial institution loans to finance developments of the LNG projects. The guaranteed amounts above is asof March 31, 2009.

Report of Independent Auditors

The Board of Directors
INPEX CORPORATION
We have audited the accompanying consolidated balance sheets of INPEXCORPORATION and consolidated subsidiaries as of March 31, 2011 and 2010,
the related consolidated statements of income, changes in net assets, andcash ﬂows for each of the three years in the period ended March 31, 2011, andconsolidated statement of comprehensive income for the year ended March
31, 2011, all expressed in yen. These ﬁnancial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese ﬁnancial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Japan. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the ﬁnancial statements.
An audit also includes assessing the accounting principles used and signiﬁcantestimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the ﬁnancial statements referred to above present fairly, in allmaterial respects, the consolidated ﬁnancial position of INPEX CORPORATION
and consolidated subsidiaries at March 31, 2011 and 2010, and the consolidated
results of their operations and their cash ﬂows for each of the three years in the
period ended March 31, 2011 in conformity with accounting principles generally
accepted in Japan.

There was the following related party transaction for the year ended March 31, 2010 :Name of relatedparty

MI Berau B.V.

Transaction
detailAmounts

Serve the ofﬁcer Guarantee for
Exploration, development, production and sales of
Directly
Amsterdam, ½656,279
concurrently,
debt in U.S.
natural gas in Berau Block conducted in West Papua
44.00%
Netherlands thousand
capital subscription
dollars *province, Indonesia and Tangguh LNG Project¥ 22,459
millionLocation

Capitalinvestment

Nature of operations

Description of the
Votinginterest business relationship* The Company guarantees financial institution loans to finance developments of the LNG projects. The guaranteed amounts above is asof March 31, 2010.

The U.S. dollar amounts in the accompanying consolidated ﬁnancial statementswith respect to the year ended March 31, 2011 are presented solely forconvenience. Our audit also included the translation of yen amounts into U.S.
dollar amounts and, in our opinion, such translation has been made on thebasis described in Note 3.

Financial /Corporate Information

Afﬁliated company

June 28, 2011

There were no related party transactions for the year ended March 31, 2011.

116

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011117

Subsidiaries and Afﬁliates
As of March 31, 2011

Consolidated Subsidiaries

INPEX Natuna, Ltd.

Issued capital*(Millions of yen)

5,000

Voting rights
held by us (%)

Main business100.00%Exploration, development, produc tion and salesof oil and natural gas in South Natuna Sea Block B,
Indonesia

INPEX Sahul, Ltd.

4,600

100.00%Exploration, development, production and sales of oil
and natural gas in JPDA03-12 Block and Bayu-Undan
gas-condensate ﬁeld in the Timor Sea JPDA

INPEX Alpha, Ltd.

8,014

100.00%Exploration, development, production and sales of oil
and natural gas in WA-35-L Block and others, Australia

Company name

Issued capital*(Millions of yen)

Voting rights
held by us (%)

2,657

60.92%TEIKOKU OIL (SURINAME) CO., LTD.
Teiseki Pipeline Co., Ltd.

100
86,135INPEX DLNGPL Pty Ltd(Thousands of
AUS dollars)

INPEX BTC Pipeline, Ltd.

(Thousands of
U.S. dollars)

63,800Main business

Exploration of oil in the Northern offshore, Suriname

100.00%Natural gas transportation, pipeline operation,
maintenance and management

100.00%Investment in Darwin LNG Pty Ltd., that constructs
and operates the under sea pipeline and LNG plantconnecting Bayu Undan Gas/Condensate Field andDarwin (Australia)

100.00%Investment in pipeline construction and managementbusiness which connects Baku (Azerbaijan), Tbilisi(Georgia) and Ceyhan (Turkey)

INPEX Tengah, Ltd.

1,020

100.00%Exploration, development, production and sales ofoil and natural gas in Tengah Block in Offshore East
Kalimantan, Indonesia

INPEX Browse, Ltd.

67,690100.00%Exploration and development of oil and natural gas in
WA-37-R Block and others, Australia

Teiseki Topping Plant Co., Ltd.

70

100.00%Reﬁning domestic crude oil, storage and shipment of
petroleum products

INPEX Masela, Ltd.

33,34851.93%

Exploration and development of oil and natural gas in
Masela Block in the Arafura Sea, Indonesia

INPEX Trading, Ltd.

50

100.00%

Sales, agency, and brokerage of crude oil and market
research and sales planning in connection with oil andnatural gas sales

INPEX Offshore Northeast Mahakam, Ltd.

3,875

100.00%Exploration of oil and natural gas in East Kalimantan
Block in Offshore East Kalimantan, Indonesia

Teiseki Propane Co., Ltd.
Saitama Gas Co., Ltd.

80

100.00%

Sales of LPG and petroleum products

60

62.67%

City gas sales

Teiseki Transport System Co., Ltd.

10100.00%Transport by motor trucks and sales of petrochemical
products

Voting rights
held by us (%)

Main business

INPEX South Makassar, Ltd.

1,097

100.00%Exploration and development of oil and natural gas in
Sebuku Block in the south of the Offshore Mahakam
Block, Indonesia

INPEX Timor Sea, Ltd.

6,712

100.00%Exploration and development of oil and natural gas in
JPDA06-105 Block in the Timor Sea JPDA

INPEX Southwest Caspian Sea, Ltd.

53,59451.00%

Exploration, development, production and sales of oil
in ACG Oil Fields, Azerbaijan

INPEX North Caspian Sea, Ltd.

50,58045.00%

Exploration and development of oil in Offshore North
Caspian Sea Block, Kazakhstan

Japan Oil Development Co., Ltd.

18,800100.00%Exploration, development, production and sales of oil
in ADMA Block, United Arab Emirates

INPEX ABK, Ltd.

2,500

100.00%Exploration, development, production and sales of oil
in Abu Al Bukhoosh Block, United Arab Emirates

Company name10

100.00%Exploration, development, production and sales of oilin Offshore D. R. Congo Block

MI Berau B.V.

10,72252.70%

Exploration, development, production and sales of oilin the West Bakr Block, Egypt

708

100.00%

4,905

Teikoku Oil (D.R. Congo) Co., Ltd.
The Egyptian Petroleum Development
Co., Ltd.
Teikoku Oil Algeria Co., Ltd.
INPEX Libya, Ltd.
Teikoku Oil Libya UK LTD
Teikoku Oil (Venezuela) Co., Ltd.
Teikoku Oil (North America) Co., Ltd.
INPEX Canada, Ltd.

23 other subsidiaries

Equity-Method Afﬁliates
Issued capital*(Millions of yen)(Thousandsof euros)

44.00%

Exploration, development, production and sales ofnatural gas in Berau Block and Tanggu LNG Project,
Indonesia

Angola Japan Oil Co., Ltd.

8,000

19.60%Development and production of oil in Offshore 3/05
Block, Angola

Exploration and development of oil in the eastern
onshore, Algeria

Japan Ohanet Oil & Gas Co., Ltd.

6,400

15.00%Development and production of natural gas in thesoutheastern onshore, Algeria

100.00%Exploration of oil and natural gas in the 42-2&4 and
113-3&4 Blocks, Libya

INPEX Offshore North Campos, Ltd.

6,852

37.50%

Financing for oil and natural gas exploration anddevelopment projects in Frade Block in Offshore
North Campos, Brazil

100.00%Exploration of oil in the 81-2 and 82-3 Blocks, Libya

8 other equity-method afﬁliates

100.00%Reac tivation of oil and gas fields, ex plor ation,
development, produc tion and sales of oil in the
Guarico Oriental area, Venezuela(Thousands of
U.S. dollars)

100.00%Exploration, development, production and sales of oilin the United States

17,160100.00%Exploration and development of oil and natural gas
including oil sands in Canada

656,279

67,055(Thousands of
U.S. dollars)

100
16,593

Subsidiaries of Equity-Method Afﬁliates
Company name

Frade Japão Petróleo Limitada

Issued capital*

103,051(Thousandsof reais)

Voting rights
held by us (%)

0.00%

Financial /Corporate Information

Company nameMain business

Exploration, development, production and sales ofoil and natural gas in Frade Block in Offshore North
Campos, Brazil

2 other subsidiaries of equity-method afﬁliates* Rounding off fractions less than the unit.

118

INPEX CORPORATION Annual Report 2011

INPEX CORPORATION Annual Report 2011

119

Oil and Gas Glossary

Corporate Information(As of March 31, 2011)■ Brent crude
A type of crude oil that holds a major positionin the mar ket for cr ude oil prices. Brent
crude is a light oil with low sulfur content
and is mainly extracted from the Brent oilfield located in the North Sea of the United
Kingdom.
■ Concession contract
A contract that directly grants mining rights(including mining rights in Japan and permits,
licenses and leases in other countries) to oilcompanies through a contract or approval
from the government of oil-producing
countries or from national oil companies.
The oil company itself makes investment andholds the right for disposition for the acquired
oil and gas. Oil-producing countries receive
taxes or royalties from sales.
■ Condensate
Generally, a type of crude oil extracted as aliquid from gas fields. Liquid (oil) that exists
as a gas underground but that condenses
when extracted to the surface is referred to ascondensate oil or simply as condensate.
■ International Energy Agency (IEA)
A joint ac tion agency for energy, the IEA
is composed of the major oil- consuming
countries. The agency was founded in 1974
as an independent organization af filiatedwith the OECD. The agency has 28 member
countries.
■ LNG (Liqueﬁed Natural Gas)LNG s t ands for liquid natur al gas. Af ter
removing impurities such as moisture, sulfur
compounds and carbon dioxide from natural
gas with a chief cons tituent of methane,
the gas is liquefied by cooling to ultra-low
temperatures (-162°Celsius). This process
compresses the volume of the gas to 1/600,
thus making it possible to transpor t large
quantities in a single shipment.
■ LPG (Liqueﬁed Petroleum Gas)
LPG stands for liquid petroleum gas, an oil
product that is a mixture of hydrocarbon gaseswith a carbon number of 3 or 4, for example,
propane, propylene, butane, but ylene ora mix ture of these as main cons tituent s.
Although LPG is a gas at ambient temperatureand normal pressure, it is liquefied throughexposure to low pressures or temperatures(cooling).
■ Oil majors
Oil majors are also known as majorinternational oil companies. ExxonMobil (U.S.),Royal Dutch Shell (U.K./Netherlands), BP (U.K.),

120

INPEX CORPORATION Annual Report 2011

Chevron (U.S.) and TOTAL (France) are famousas the ﬁve oil majors. Each of these companies
possesses an integrated system including
departments for conducting both upstream
and downstream business.
■ Oil sands
Sandstone beds that contain an extremely
viscous tar-like crude oil which has no ﬂuidity
in it s initial s t ate. This is as opposed toconventional crude oil which can be easily
pumped upward using a well. Depending on
the level of viscosity, crude oil extracted fromoil sand is referred to as bitumen or extra
heavy crude oil.
■ Operator
In the case of multiple parties to a contract
regarding blocks of oil/gas and associatedE&P work, a joint operating agreement isentered into bet ween the par ties and itis necessar y to achieve agreement on therights and obligations for all items required
when conducting operations. At that time,
the party responsible for the execution andmanagement of the operations is referred toas the operator. In contrast, parties other thanthe operator are referred to as non-operators.
■ Probable reserves (our company)
The definition of probable reser ves is inaccordance with regulations (2007 PRMS)
for mulate d by t he Societ y of Pet roleum
Engineers (SPE) through suppor t from theWorld Petroleum Council (WPC), the American
Association of Petroleum Geologists (AAPG)
and the Societ y of Petroleum Evaluation
Engineers (SPEE). The rule defines probablereserves as the estimated quantities of crude
oil and natural gas that can be added toproved reserves and commercially collectedbased on geological and engineering data.
■ Production sharing contract (PSC)
A contract in which one or more companies
i nvo l ve d i n t h e d eve l o p m e nt of oil a n dnatural gas acts as a contractor andunder takes operations for exploration anddevelopment on behalf of the governmentsof oil-producing countries or national oil
companies. The contrac tor is responsible
for the costs associated with the operations.
Corresponding amounts for cost recovery andcompensation are received from production
by a contractor.
■ Proved reserves
T h e d e f i n i t i o n o f p r ove d r e s e r ve s i s i naccordance with SEC Regulation S-X Rule
4-10, a rule that is well-known among investors
in the United States. The rule deﬁnes proved
reserves as the estimated quantities of crude
oil and natural gas that can, with reasonable
cer tainty and under current economic andoperating conditions, be collected from agiven date forward based on geological andengineering data.
■ Reserves to production ratio
The reserves to production ratio (R/P ratio)
is calculated by subtracting the production
for a given year from the reserves at the endof that year. The resulting ﬁgure is applied tothat particular oil field or region and shows
how many years production can be continued
if annual production continues at the amountfor that year.
■ Rig
Machinery for drilling a well that is used tosearch for and produce oil and natural gas.
■ Royalty
Royalty refers to a speciﬁc share of productionr e s e r ve d by t h e o w n e r of u n d e r g r o u n dminer als (e.g., a s t ate or a municipalit y)when granting mining rights, without taking
responsibility for production costs. In somec as es, t he s hare inc reas es according toincreases in production. Royalties may be paidin kind or in cash.
■ Shale gas
A type of unconventional natural gas that iscontained in mudstone. It is referred to as
shale gas because it is contained in shale
within the mudstone. Shale is particularly hard
and tends to peel into ﬂakes.

Corporate Data
Company Name
INPEX CORPORATION
Established
April 3, 2006
Capital¥290,809,835,000
Company Headquarters
Akasaka Biz Tower 5-3-1 Akasaka, Minato-ku,
Tokyo 107-6332, Japan

Number of Employees (Consolidated) 1,854
Main BusinessResearch, ex plor ation, development,p ro d u c t io n a n d s ale s of oil, nat ur al g as
and other mineral resources, other related
businesses and investment and lending tocompanies engaged in these activities.

Organization Chart (As of June 30, 2011)
Shareholders’ Meeting

Abu Dhabi Project Division

Audit Unit

Technical Division

HSE Unit

Oil & Gas Business Division 1

Masela Project Division

General Administration Division

Oil & Gas Business Division 2

Ichthys Project DivisionCorporate Strategy &Planning Division

Asia, Oceania & Offshore Japan
Project Division

Domestic Project Division

Finance & Accounting Division

America & Africa Project Division

Pipeline Construction Division

Logistics & IT System Division

Eurasia & Middle East Project Division

LNG Receiving Terminal
Construction Division

Board of Auditors

Board of Directors

Compliance Committee
Management Committee

President

Stock Data
Authorized Shares: 9,000,000 common shares

Total Number of Shareholders and Issued Shares
Common shares: 38,753 shareholders/3,655,809 shares
Special-class share*: 1 shareholder (Minister of Economy, Trade andIndustry)/1 share

1 special class share* The Company’s Articles of Incorporation stipulate that certain major corporate
decisions require a resolution by the holder of the special-class share in
addition to the approval of the shareholders’ meetings or Board of Directors.

Major Shareholders (Common Shares)

Unit Conversion
Crude oil1 kl 㲈 6.29 barrels
1 ton 㲈 7.4 barrels
1 barrel 㲈 6,000cf (natural gas)100,000 barrels/day 㲈 4 million tons/year (LNG)
Natural gas
1 cf 㲈 1,000 Btu*
1 billion m3 㲈 700,000 tons (LNG)
100 million cf/day 㲈 700,000 tons/year (LNG)
1 trillion cf 㲈 1 million tons 20 years (LNG)(20 million tons)
Sale gas
1 m3 㲈 37.32 cf
LPG
1 ton 㲈 10.5 barrels (crude oil)
LNG
1 ton 㲈 8.8 barrels (crude oil)
㲈 1,400 m3 (natural gas)
㲈 53 million Btu*

Shareholding by Shareholder Type

Name

Number ofsharesPercentage
of totalshares*(%)

Minister of Economy, Trade and Industr y692,307

18.9

Japan Petroleum Exploration Co., Ltd.

267,233

7.3

Mitsui Oil Exploration Co., Ltd.

176,760

4.8

Mitsubishi Corporation

134,500

3.7

JX Holdings, Inc.

134,432

The Master Trust Bank of Japan, Ltd.
(Trust Account)
Japan Trustee Ser vices Bank, Ltd.
(Trust Account)

Percentage
of totalshares* 1(%)

Number ofshareholders

Number ofsharesFinancial Institutions (Including
Trust Accounts)

112

529,646

14.5

Securities Companies

47

25,738

0.7

Other Domestic Corporations

430

826,752

22.6

3.7

Minister of Economy, Tradeand Industry* 2

1

692,30718.9

130,362

3.6

Foreign Corporations andOther

673 1,468,447

40.2

124,404

3.4

Individuals and Other

State Street Bank and Trust Company

99,989

2.7

JP Morgan Chase Bank 380055

95,2392.6State Street Bank and Trust Company
50522359,362

1.6

Shareholder type

Treasury Stock

37,489108,003

3.0

1

4,916

0.1

*1 Percentage of total shares are for all issued and outstanding shares.
*2 Excludes one special class share.

Financial /Corporate Information■ BarrelIn the case of oil, 1 barrel is equal to 42
gallons (approx. 159 liters).

* Percentage of total shares are for all issued and outstanding shares.

*British thermal unit

Home Page

Inquiries

Note: Unit-equivalent figures are estimates. We
cannot guarantee those ﬁguresʼ accuracy as applied
to dealing or veriﬁcation.

The Company’s Web site provides investors with the most up-todate IR information, including ﬁnancial statements.
http://www.inpex.co.jp/

Please contact us at:
INPEX CORPORATION
Corporate Strategy & Planning DivisionCorporate Communications Unit
Investor Relations Group
Phone: +81-3-5572-0234, Fax: +81-3-5572-0235

INPEX CORPORATION Annual Report 2011121

Akasaka Biz Tower
5-3-1 Akasaka, Minato-ku
Tokyo 107-6332, Japan
Phone: +81-3-5572-0200
http://www.inpex.co.jp/

A Firm Commitment to
Sustainable Energy

Printed in Japan