Securing

the Future Energy Supply

Annual Report 2008

INPEX Holdings Inc.

Toward New Frontiers
In October 2008, following the completion of a two-and-a-half-year integration
process, we made a new start as the newly founded INPEX CORPORATION.
The substantial improvement in international competitiveness resulting from themerger of INPEX CORPORATION, a leading Japanese E&P company, and Teikoku Oil Co.,
Ltd., a pioneer of E&P in Japan, will enable us to strive to become an energy company
that continues to meet expanding energy demand.

Masatoshi Sugioka

Kunihiko Matsuo

Naoki Kuroda

Representative Director Representative Director, Representative Director,
ChairmanPresident

Contents

INPEX Summary............................................................................ 2

Our Performance............................................................. 2
Our Operations................................................................ 4
Our Supply Basis.............................................................. 6
To Our Stakeholders..................................................................... 8
An Interview with the President................................................. 9
Global Business Activities............................................................. 16
c Asia & Oceania (Indonesia).................................................. 16
c Asia & Oceania (Australia & JPDA)....................................... 20
c Eurasia (Europe & NIS)......................................................... 24
c Middle East & Africa........................................................... 27
c Americas............................................................................. 30
c Japan.................................................................................. 33
Mission, Corporate Social Responsibility Policy & Health,
Safety and Environment Policy.................................................. 35
Corporate Social Responsibility .................................................. 36
Corporate Governance................................................................. 38
Management Team...................................................................... 42
Financial Section........................................................................... 43
Operating Data and Corporate Information.............................. 77
Stock Information........................................................................ 86
Corporate Data............................................................................. 87
Forward-Looking Statements
This annual report includes forward-looking information that reflects the Company’s plans and expectations. Such forward-looking information is basedon 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 orfinancial position to be materially different from any future results, performance, achievements or financial position expressed or implied by suchforward-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 update or revise any information in this annual report (including forward-looking information).
Notes regarding figures
Financial figures in this annual report have been rounded to the nearest unit (millions, billions, etc.) for purposes of convenience.

INPEX Corporation

1

INPEX Summary

Our Performance
Millions of yen

Thousands of
U.S. dollars*7

2007

2008

2008

Net sales ..............................................................................................................
Japan ...............................................................................................................
Asia & Oceania .................................................................................................
Eurasia (Europe & NIS) ......................................................................................
Middle East & Africa .........................................................................................
Americas ..........................................................................................................
Operating income ................................................................................................
Net income ..........................................................................................................
Cash flows from operating activities ....................................................................
ROE*1 (%) ...........................................................................................................
Net ROACE*2 (%) ................................................................................................
Payout ratio (%) ..................................................................................................

¥ 969,713
77,322
387,543
118,618
386,009221
559,077
165,092
231,982
17.7
20.4
9.9

¥1,202,965
93,882452,542
183,879
464,523
8,139
714,211173,246
363,995
15.8
21.4
10.2

$12,005,639
936,946
4,516,387
1,835,120
4,635,958
81,228
7,127,854
1,729,002
3,632,684———

Total assets ..........................................................................................................
Net debt (at period end)*3,6 ..................................................................................
Equity ratio*4 (%) ...............................................................................................
Net debt/Total capital employed*5,6 (%) . ..............................................................

1,608,107(169,667)
64.0(18.6)

1,807,901(328,353)
64.0(36.1)

18,042,924(3,276,976)
—
—

Yen

U.S. dollars*7

73,510.147,500.00

733.6374.85

INPEX CORPORATION and Consolidated Subsidiaries
Years ended March 31

Per share data:
Net income ......................................................................................................
Cash dividends .................................................................................................

70,423.45
7,000.00

Yen

Share price ..........................................................................................................

Market Capitalization ..........................................................................................

1,020,000

2,405.6

1,110,000—

Billions of yen

Millions of
U.S. dollars*7

2,617.8

26,126

Notes:*1 ROE = Net income / Average of net assets excluding minority interests at the beginning and end of the fiscal year
*2 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 the
fiscal year)*3 Net debt = Interest-bearing debt – Cash and deposits – Public bonds and corporate bonds and other debt securities with determinable value – MMF, short-term bonds with
repurchase agreements and certificate of deposit*4 Equity ratio = (Net assets – Minority interests) / Total assets*5 Net debt / Total capital employed = (Interest-bearing debt – Cash and deposits – Public bonds and corporate bonds and other debt securities with determinable value – MMF,
short-term bonds with repurchase agreement and certificates of deposit) / (Net assets + Interest-bearing debt – Cash and deposits – Public bonds and corporate bonds and otherdebt securities with determinable value – MMF, short-term bonds with repurchase agreement and certificates of deposit)
6* Figures in parentheses denote negative amounts.
7* The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic computation only, at ¥100.20 = US$1.00, the approximate rateof exchange in effect on March 31, 2008.

2

INPEX Corporation

c Higher sales and profits in the year
ended March 31, 2008 were theresult of increased sales volume foroil and natural gas, coupled withsupport from high oil prices and ac Return on equity (ROE) was
slightly lower due to greater
growth in shareholders’ equity
relative to growth in net income.
However, net return on average
capital employed (ROACE), whichtakes net interest-bearing debt

weaker yen.

c The Company’s ratio of net debt tototal capital employed improved
significantly year on year to–36.1% due to an increase in cash
and deposits, government bonds
and other funds on hand for use in
future large-scale projects. Thisratio indicates INPEX’s continuing
financial soundness.

into account, rose by roughly 1%.

Net sales

Net income(Billions of yen)
■ Japan ■ Asia & Oceania ■ Eurasia (Europe & NIS)
■ Middle East & Africa ■ Americas(Billions of yen)

2008

452.5

183.9

464.5

93.9

2007

387.5 118.6

386.0

77.3
0

173.2

2008
2007

969.7

165.1

0.2

200

400

600

800

1,000

0

1,200

40

80

120

160

ROE

Net debt/Total capital employed

(%)

(%)

15.8

2008
2007
15

2007
20

200

-36.1

2008
17.7

10

30

1,203.0
8.1

-18.6
-40

-20

0

Share price performance—TOPIX
(%)

20

INPEX

TOPIX

■

10
0
-10
-20
-30

April 3, 2006

October 2, 2006

April 2, 2007

October 1, 2007

June 30, 2008

INPEX Corporation

3

Our Operations
Years ended March 31

2007

Net proved reserves (End of period)*1:
Crude oil, condensate and LPG (MMbbls) .......................................................................................
1,139
Natural gas (Bcf) .............................................................................................................................
3,782
Total (MMboe) . ..............................................................................................................................
1,770
Net production*1:
Crude oil, condensate and LPG (Mbbls/day) ....................................................................................
242.5
Natural gas (MMcf/day) ..................................................................................................................
1,051.1
Total (Mboe/day) ............................................................................................................................
417.7
Average expenses per boe produced (US$)*2:
Production*3 ...................................................................................................................................
8.5
General and administrative .............................................................................................................
1.7
Costs incurred (Millions of yen)*4:
Acquisition .....................................................................................................................................
1,144
Exploration .....................................................................................................................................
30,544Development . ................................................................................................................................
185,957
Total ...............................................................................................................................................
217,646
Reserves to production ratio (Years):
Proved reserves as of the end of the fiscal year / Production in the fiscal year ..................................
11.6
Proved reserves + Probable reserves, as of the end of the fiscal year / Production in the fiscal year ....
24.5
Standardized measure of discounted future net cash flows
from proved reserves (Millions of yen)*1,5: .................................................................................. 1,347,128
Reserve replacement ratio (3-year average as %)*6: ...................................................................
293
Finding and development cost per boe (3-year average in US$)*2,7: ..........................................
6.9
Net probable reserves (End of period)*1:
Crude oil, condensate and LPG (MMbbls) .......................................................................................
1,610
Natural gas (Bcf) .............................................................................................................................
2,095
Total (MMboe) . ..............................................................................................................................
1,959
Notes:*1 See item on page 78 regarding “Oil and Natural Gas Reserves and Production Volume.” Proved reserves and production volume arecalculated in accordance with U.S. Security Exchange Commission (SEC) rules.
*2 Figures are translated into U.S. dollars based on the average exchange rate of ¥116.62 per U.S. dollar for the fiscal year ended March 31,
2007, and ¥113.61 per U.S. dollar for the fiscal year ended March 31, 2008. Figures exclude all equity-method affiliates except those ofJapan Oil Development Co., Ltd. (JODCO).
3* Operating expenses plus royalties due others.
4* Excluding our proportional interest of equity-method affiliates except JODCO’s equity-method affiliate.
*5 The exchange rate was the telegraphic transfer middle (TTM) rate of ¥118.09 per U.S. dollar as of March 31, 2007, and ¥100.20 per U.S.
dollar as of March 31, 2008.
*6 Reserve replacement ratio = Proved reserves increase including acquisition / production
7* The sum of total costs incurred, for exploration and development of oil and gas fields and total costs incurred for acquisitions divided by
the sum of proved reserve extensions, acquisitions and revisions.

4

INPEX Corporation

2008

1,088
3,346
1,645
241.5
1,088.8
423.0
10.2
1.6
17,98064,746
232,958
315,68410.7
28.2
1,701,806
122
17.5
1,274
8,682
2,721

c Although net proved reserves as ofMarch 31, 2008 slightly decreased
from the previous year, net probable reserves rose sharply year on
year due to the addition of reserves
from the Ichthys Project.

c Net production for crude oil, condensate and LPG decreased slightly
from the previous year, while natural
gas increased around 1.3% from theprevious year, mainly from increasedc Exploration and development cost
increased sharply for the year,
reflecting aggressive explorationand development activities in ouroperator projects and others.

gas production in Japan.

Net proved reserves and net probable reserves

Exploration and development cost

(MMBOE*1)■ Net proved reserves ■ Net probable reserves(Millions of yen)
■ Acquisition ■ Exploration ■ Development

2008

1,645

2007

1,770

2,721 4,366

2008

3,728

2007

1,959

64,746
17,980232,958
185,957

315,684

217,646

1,144 30,544
0

1,000

2,000

3,000

4,000

0

5,000

100,000

200,000

300,000

400,000

Net proved reserves and net probable reserves(By product)(As of March 31, 2008)(By region)
Americas4,366 MMBOE*1

Japan

3%

4%
Eurasia(Europe & NIS)

Naturalgas

Crude oil,14%
condensate
and LPG
Middle East & Africa

46%

54%

Net production

Asia & Oceania

59%

20%

(By product)(By region)
Americas423 MBOED*2

Japan

3%

8%
Naturalgas

43%*1 Millions of barrels of oil equivalent*2 Thousands of barrels of oil equivalent
per day

Crude oil,condensate
and LPG

Eurasia(Europe & NIS)

13%

Asia & Oceania

42%

57%
Middle East & Africa

34%

INPEX Corporation

5

Our Supply Basis
Worldwide E&P Activities

Eurasia (Europe & NIS)
Page 24• Offshore North Caspian Sea Block (Kashagan Oil Field and Others)(Kazakhstan)• ACG Oil Fields (Azerbaijan)• BTC Pipeline (Azerbaijan, Georgia, Turkey)

Japan
Page 33• Minami-Nagaoka Gas

Field and Domestic
Natural Gas Business

Asia & Oceania (Indonesia)
Page 16• Offshore Mahakam Block and Attaka Unit
• South Natuna Sea Block B• Masela Block (Abadi)• Berau Block, Tangguh LNG Project

Middle East & Africa
Page 27• ADMA Block (United Arab Emirates)• Offshore Democratic Republic of the Congo(Democratic Republic of the Congo)• West Bakr Block (Egypt)• El Ouar I/II Blocks (Algeria)
Our E&P operations

Asia & Oceania (Australia & JPDA*)
Page 20• WA-10-L (Griffin Fields), WA-155-P (Part I) Block(Van Gogh and Ravensworth Fields) (Australia)• WA-285-P (Ichthys) and the Surrounding Blocks (Australia)• JPDA03-12, Bayu-Undan Project (JPDA)• JPDA06-105 (Kitan Oil Field) (JPDA)* The Timor Sea Joint Petroleum Development Area

6

INPEX Corporation

72 projects in
26 countries

Net probable reserves ofWith business operations covering 72 projects in
26 countries, we boast a balanced portfolio interms of activity area, types of contracts,
operating stages (exploration/development/
production) and the proportion of crude oil tonatural gas.

We have the largest proved reserves among
Japanese companies, and our net probablereserves amount to 2,721 MMBOE. The reserveproduction ratio for the proved reserves equates
to 10.7 years, or 28.2 years when probablereserves are added. Based on this, we expect
steady increases of production volume andproved reserves over the medium to long term.

(Figures as of June 30, 2008)

Production volume*2 to

2,721 MMBOE*

exceed 700 MBOED*3

1*1 MMBOE: Millions of barrels of oil equivalent

Based solely on existing projects, we estimatethat production volume will increase to 700
MBOED between 2015 and 2020, an increase ofroughly 70% compared to our present volume ofaround 420 MBOED.
The discovery of new oil and gas fields,
coupled with new asset purchases, have thepotential to add even more to this projected
production volume.
*2 In accordance with U.S. Security Exchange Commission(SEC) rules.
*3 MBOED: Thousands of barrels of oil equivalent per day

Production volume growth potential(MBOED)2015– 2020Approximately 700 +α

2008

420

0

200

400

600

800

1,000

Production Start-up Schedule
Production
Start-up

Americas
Page 30• Frade Block (Brazil)• Ship Shoal 72, Main Pass 117/118

and West Cameron 401/402 (United States of America)

Country

April 2008
Frade Oil Field– March 2009 Tangguh LNG Project

BrazilIndonesia

April 2009
Van Gogh Oil Field– March 2010 North Belut Gas Field

Australia
Indonesia

April 2010
Ravensworth Oil Field– March 2011

Australia

April 2012
El Ouar I/II
– March 2013

Algeria

After
April 2013

Joslyn Oil Sands Project (Cut off mining) Canada
Ichthys LNG Project
Australia
Abadi (Masela) LNG ProjectIndonesia

Discovered/
Production
start-up(TBD)

Kashagan Oil Field
Kuda Tasi/Jahal/Kitan
Kalamkas, Aktote, Kairan andSouthwest Kashagan structures• Joslyn Oil Sands Project (Canada)• Copa Macoya and Guarico Oriental Blocks (Venezuela)

Project/Oil & Gas Field

Kazakhstan
JPDA
Kazakhstan

INPEX Corporation

7

To Our Stakeholders

On October 1, 2008, INPEX Holdings Inc. absorbed INPEX CORPORATION and
Teikoku Oil Co., Ltd. and made a fresh start as the new INPEX CORPORATION.
We will secure an even more efficient and flexible management­structure to realize the stable and efficient supply of crude oil and­natural gas. We will strive to enhance corporate value, while securing
shareholder support.
October 2008

Naoki Kuroda
Representative Director, President

8

INPEX Corporation

An Interview with the President

Question1

Could you give us a brief overview of businessperformance for the fiscal year ended March 31, 2008?

AnswerSales and earnings increased based on steady increases in crude
oil and natural gas sales volume and higher sales prices.
Production and sales volume increased steadily in the fiscal year ended March 31, 2008, withincreased crude oil production volume at the ACG Oil Fields in Azerbaijan, increased sales
volume to major clients in the domestic natural gas business, and the booking of natural gas
sales as contracts took effect in the Venezuela project. High crude oil and natural gas prices
also lent support, resulting in consolidated net sales of ¥1,203.0 billion, an increase of 24.1%
compared to the previous year, including crude oil sales of ¥783.5 billion, up 29.0%, andnatural gas sales of ¥391.1 billion, up 17.5%.
Cost of sales increased due to higher royalty and development expenses, exploration
expenses increased, and selling, general and administrative expenses increased due to higher
crude oil transport expenses and depreciation expenses, but operating income was ¥714.2
billion, an increase of 27.7% compared to the previous year.
Net income before income taxes and minority interests was ¥685.8 billion, an increase of
17.0% compared to the previous year, while net income was ¥173.2 billion, an increase of
4.9%, mainly because of a higher proportion of foreign taxes, which have a higher tax rate.
We believe that we were able to achieve further strengthening of our financial base in thefiscal year ended March 31, 2008, supported by such strong earnings.
Billions of yen

2007

2008

ChangePercentagechange (%)

Consolidated net sales

969.7

1,203.0

233.3

24.1

Crude oil sales

607.4

783.5

176.1

29.0

Natural gas sales*

332.9

391.1

58.2

17.5

29.4

28.4

(1.0)

(3.3)

Operating income

Others

559.1

714.2

155.1

27.7

Net income before income taxes
and minority interests

586.3

685.8

99.5

17.0

Net income

165.1

173.2

8.1

4.9

* Includes LPG
INPEX Corporation

9

Question

2

Soaring prices for crude oil and natural gas had a significant
impact on revenues in the fiscal year ended March 31, 2008.
Tell us about market trends for crude oil and natural gas.

AnswerAs the increase in crude oil prices becomes prolonged, demand
for natural gas is expanding rapidly, including in the domestic
market. It is now becoming apparent that LNG is emerging as
the approach for meeting strong demand for natural gas.
Crude oil prices, which have a significant impact on Group business performance, changed
drastically in the year ended March 31, 2008, rising by US$35.64 per bbl for the year on aWest Texas Intermediate (WTI) closing price basis. WTI started at US$65.94 in April 2007, rose
continuously due to political turmoil and geopolitical risk in Nigeria and low gasoline inventories in the U.S., as well as the shift of speculative money to the crude oil futures market, andended the fiscal year at US$101.58. Reflecting these factors, the Group’s average sales pricefor crude oil rose 28.8% compared to the previous year, reaching US$80.07 per bbl.
Amid the continuing increase in crude oil prices and increased prioritization of environmental issues, demand for natural gas is expanding globally, especially given its superior environmental performance relative to oil. Demand for natural gas continues to grow in domestic
regions supplied by the Group as well, mainly due to a shift in fuel from petroleum-based fuelto natural gas. The approach of meeting strong demand for natural gas with LNG is also
becoming marked as pipeline supply of gas produced in the U.S. and the North Sea stagnates.
Based on such trends, we believe that LNG transactions, which previously had been positioned
as a fuel for East Asia, mainly Japan, will become rapidly globalized in the future.

150

Crude oil prices($/bbl)100

50

Source: NYMEX WTI (West Texas Intermediate)0

2003/110

INPEX Corporation

2004/1

2005/1

2006/1

2007/1

2008/1 2008/6

LNG demand trends
Source: The Institute of Energy Economics, Japan(Million tons)■ Asia ■ Eurasia ■ Americas

2005

92.39

1,417.4

35.97
13.38

1,110.0

2010

520.0

1,240.0

1,410.0

2020

350.0 1,980.0 low demand case415.0 2,265.0 high demand case

610.0

Question

1,000

1,210.0 3,790.0 low demand case930.0
2,160.001,160.0 3,760.0 high demand case

900.0

1,650.0

2030

910.0 3,050.0 low demand case730.0

1,700.0

2,000

1,230.0

3,000

1,630.0

4,000

5,020.0 high demand case

5,000

6,000

3

Tell us about progress in major projects.

AnswerSteady progress is being made in major projects both­domestically and overseas.
In the Ichthys Project, which is a large-scale project in Australia where we are involved as an
operator from exploration and development of the gas field to production and sales of LNG,
we are actively working on development studies toward the start of LNG production from thesecond half of 2013 to the first half of 2014. LNG production volume is scheduled to be morethan 8 million tons per year, and we also expect production of about 100,000 bbl of condensate daily and about 1.6 million tons of LPG per year. Going forward, we will begin detailed
engineering work after selecting a construction site for the LNG plant (liquefying facility).
In the Abadi Gas Field, Masela Block, Indonesia—our next major project with promisingcommercial potential after Ichthys—we are planning annual LNG production of 3.5 million to
5 million tons with a target date of 2015 to 2016 for the start of production. In May 2007, we
continuously drilled four appraisal wells for the purposes of evaluating the extent of the gas
reserve, and the results of the appraisal wells have been very favorable, leading to hopes for afurther increase in reserves.
INPEX Corporation

11

Our two large-scale oil field development projects on the coast of the Caspian Sea areprogressing as well. At the ACG Oil Fields in Azerbaijan, crude oil production was started fromthe Deep Water Gunashli Field in April 2008. The start of production from this field meansthat all phases of the original plan for the ACG Oil Fields have moved to the production stage.
As a result, crude oil production for the entire ACG block will exceed one million barrels per
day in 2009, as scheduled. As for the Kashagan Oil Field in Kazakhstan, the first phase is­currently under development, with a shift to a Full Field Development Program scheduled
thereafter, with peak crude oil production set to reach 1.5 million barrels per day, a 25%
increase from the initial plan.
Finally, in the domestic natural gas business based on the Minami-Nagaoka Gas Field,
Japan’s largest, we began full-scale studies toward construction of an LNG import terminal in
Joetsu City, Niigata Prefecture (Naoetsu Port) in August 2007, aiming to secure medium- tolong-term capacity to supply natural gas. We decided to go ahead with construction in
August 2008. In December 2007, the Shin Tokyo Line (extension) and the Gunma Line pipelines, which we had been working on as a way to strengthen natural gas transport capacity,were completed, improving the capacity and stability of the overall pipeline network andstrengthening our natural gas supply structure.

Question

4

How will you expand the natural gas business amid theglobal expansion in natural gas demand?

Answer

We will expand the natural gas business by taking full­advantage of our strengths of abundant reserves and coreareas with relatively low country risk.
The biggest strength of our growth strategy for the natural gas business is our abundantreserves of natural gas. As of the end of March 2008, we held proved and probable reservesof about 2 billion barrels of oil equivalent. Adding in the Abadi Gas Field in Indonesia, which
has not been included in probable reserves at this point, our reserves compare favorably to
mid-sized E&P companies.
In addition, the investment environment in Indonesia and Australia, the core areas for our
natural gas business, is very favorable, and country risk is relatively low, making it possible tosecure stable earnings.

12

INPEX Corporation

We believe that we will be able to maintain and enhance our corporate value by commercializing profitable, abundant natural gas resources, taking full advantage of the wealth ofoperating experience and technical skills we have accumulated domestically and abroad, andconducting appropriate cost controls. In particular, we have identified the realization of twolarge LNG projects, Ichthys and Abadi, as top priorities for our growth strategy, and will focus
our efforts on these projects.

Question

5

How is the Joslyn Oil Sands Project positioned
for your Group?

Answer

The project is the Group’s first full-scale entry into a large-scale
unconventional oil development project.
In November 2007, the Group acquired a 10% interest in the Joslyn Oil Sands Upstream­Project* in Alberta Province, Canada, being conducted by French oil company TOTAL S.A., aswell as the right to participate in the construction and operation of the Upgrader Project forthe production of synthetic crude oil planned by TOTAL in Edmonton, Alberta.
The Joslyn Oil Sands Project represents the Group’s first full-scale entry into a large-scale
unconventional oil development project. Country risk is extremely low, and abundantreserves and stable, long-term production can be counted on, so we believe this project cancontribute to an improved portfolio balance. We also view participation in this project as a
steppingstone to development of unconventional oil resources in Venezuela and other partsof South America.

* Currently producing oil through steam assisted gravity drainage (SAGD). Plans are in progress for large-scale mining development.

INPEX Corporation

13

Question

6

What is your understanding of the social
responsibilities that your Group should fulfill?

AnswerOur mission is to provide a stable and efficient supply ofenergy to our customers, and we believe it is important torealize our ­corporate social responsibilities through the­fulfillment of our mission.
It goes without saying that the business of our Group is closely connected to the realization ofa prosperous society through the stable supply of energy, as well as to regional and global
environmental issues. We are tackling head-on the implementation of our mission, which is to“provide a stable and efficient supply of energy to our customers by exploring and developing
oil and natural gas resources throughout the world. Through its business, we aim to become
an integrated energy company that contributes to the community and makes it more livableand prosperous.”
Amid rapid growth in demand for crude oil and natural gas and intensified competition forresources on a global scale, the Japanese government announced an energy policy that stated
oil resources produced by Japanese companies should increase to around 40%. Consequently,
the birth of a stronger E&P company for meeting Japan’s energy supply needs with strong
international competitiveness and a solid business foundation has been long awaited. We will
actively work on development of crude oil and natural gas both domestically and abroad andstrive to provide stable and efficient energy in order to fulfill our responsibility as a Japaneseleading E&P company.
In pursuing our business in various parts of the world, protecting the regional and global
environment wherever we operate is an important social responsibility that should be prioritized,
and we are sincerely tackling measures against global warming as an energy company. We will
also promote various activities that contribute to coexistence with local society, such as educational support and protection of biodiversity, while respecting the cultures and traditions of eachregion, in order to contribute to the development of the regions where we conduct our projects.
In the future, we will continue to create and realize business strategies that support environmental protection, contribute to the lives of citizens living close to business areas as well as to theireconomic development, and engage in sustainable development.

14

INPEX Corporation

Question

7

In closing, what message do you have forshareholders?

Answer

We will distribute earnings while taking into consideration boththe sustained enhancement of corporate value through active
investment and direct returns to shareholders through dividends.
On October 1, 2008, INPEX Holdings Inc. absorbed INPEX CORPORATION and Teikoku Oil Co.,
Ltd. and made a fresh start as the new INPEX CORPORATION, the culmination of a merger
that began in April 2006. We have to date worked on various initiatives aimed at the early
realization of merger effects, setting up project teams that combine outstanding humanresources from both companies in parallel with studies into new organizations, the division ofoperations and development of accounting and human resource systems. Going forward, we
will make our management structure even more efficient and flexible through complete organizational unification and consolidation of key offices.

Business Integration Process
October 1, 2008
Operating Holding Company

April 3, 2006

INPEX CORPORATION

Holding Company

INPEX Holdings Inc.

Merger
INPEX Corporation

Overseas
Operations

Domestic
Operations

Greater Efficiency
and Flexibility...
Domestic Project
Division

Area/Project
Division

Domestic
Operations

Overseas Operations

General Administration
Division
Technical Division
Oil & Gas Business Division…

Overseas Operations

Teikoku Oil Co., Ltd.

We will strive to further enhance corporate value in a sustained manner by maintaining
and expanding our reserves and production volume of crude oil and natural gas throughaggressive investments in exploration and development projects at home and abroad, andreturn profits directly to our shareholders through dividends. We believe that it will be crucialfrom a medium- to long-term perspective to harmonize these two initiatives across the Group.
In order to fulfill our corporate social responsibilities as a global energy company, we will continue to strengthen corporate governance, promote rigorous compliance and fully ensure safety
management in operations. At the same time, our business activities will be carried out with fullconsideration for development in harmony with the environment and local communities.
I respectfully thank our shareholders and ask for their continued understanding and support for the new INPEX Group.
INPEX Corporation

15

Global Business Activities

Asia & Oceania(Indonesia)
B

Berau Block, Tangguh LNG Project

1
C

South Natuna Sea Block B
Offshore Mahakam Block and Attaka Unit

Masela Block (Abadi)

Production facilities (Offshore Mahakam Block)16

INPEX Corporation

D1 Offshore Mahakam Block and Attaka Unit
Contract Area

Venture Company

Interest Owned

Offshore Mahakam

INPEX CORPORATION(Est. February 21, 1966)

INPEX CORPORATION 50%
TOTAL* 50%

Attaka Unit

INPEX CORPORATION 50%
Chevron* 50%* Operator (As of June 30, 2008)

In October 1966, INPEX CORPORATION

Bekapai, Handil, Tambora, Tunu and Peciko

entered into a production sharing contract

Fields, all of which continue to produce crude
oil and natural gas.

Bontang LNG Plants

Attaka Unit

(PSC) with the Indonesian government andSantan Terminal

Attaka Field

acquired a 100% working interest in the

Tunu Field

Offshore Mahakam Block. The Attaka Unit

are shipped by tanker from the Santan andwas established in April 1970, by the unitiza-

Senipah terminals, mainly to petroleum

Badak Field
Nilam Field
Tambora Field
Sisi Field

Handil Field
Senipah Terminal

Nubi Field

tion of parts of adjoining blocks owned byrefineries and power companies in Japan.

Bekapai Field

the Company and Unocal (now Chevron).

Natural gas is mainly supplied to the Bontang

Peciko Field

Both Companies hold an equal 50% interest

LNG Plant, one of the largest facilities of its

in the unit. Soon after this, the Attaka Field

kind in the world, and shipped to Japan andwas discovered and the production of crude

other countries.

Balikpapan

Offshore
Mahakam BlockSouth Mahakam Fields

Gas field
Oil field
Oil and gas field

Once produced, crude oil and condensate

oil and natural gas commenced in 1972. The

The PSC was extended 20 years throughCompany farmed out 50% of its working

2017, continuing the Mahakam Block’s role as ainterest in the Offshore Mahakam Block to

key profit center in the Group’s business. The

CFP (now TOTAL) in July 1970. This venture

Company is currently discussing with theresulted in the successive discoveries of theIndonesian Authorities with the aim of further
extending the term of the contract beyond 2017.

INPEX Corporation17

2 South Natuna Sea Block B
Contract Area

Venture Company

Interest Owned

South NatunaSea Block B

INPEX Natuna, Ltd.
(Est. September 1, 1978)

INPEX Natuna 35%
ConocoPhillips* 40%
Chevron 25%* Operator (As of June 30, 2008)

Natuna Sea
North Belut

South Natuna Sea Block B
BelidaKerisiIn July 1977, INPEX CORPORATION acquired amarkets. This pipeline commenced operations

17.5% working interest in the South Natunain 2001, and the following year saw new gas

Sea Block B, which includes the Udang Oil

sales to Malaysia from Block B. Owing toField. In January 1994, the Company acquired

these achievements, the PSC covering Block B

an additional interest in the block for a total

was extended through 2028.

of 35%.

In the Belanak Field, where production

Subsequent to the Company’s participation,
Hiu
Sembilang

Natuna Island

BelanakGas field
アナンバス諸島
Oil field
Oil and gas field

operations are orchestrated through theseveral new fields were discovered in Block B,

world-class Belanak FPSO (Floating Produc-

including the Belida, Sembilang, Belanak, Hiu,

tion, Storage and Offloading) system, crude

Kerisi and North Belut Fields. Crude oil pro-oil and condensate production began induction has continued since 1979. Regarding

December 2004 and was followed by LPG

gas, in January 1999, a sales agreement was

production in April 2007. Following on the

concluded to deliver gas to Singapore—fromstart of production in the Hiu and Kerisi Fields

Block B, the neighboring Natuna Sea Block A

in 2006 and 2007, respectively, the Company

and Kakap Block—through the first Indone-plans to commence production in the North

sian subsea pipeline connecting foreign

Belut Field in 2009.

3 Masela Block (Abadi)
Contract Area

Venture Company

Interest Owned

MaselaINPEX Masela, Ltd.
(Est. December 2, 1998)

INPEX Masela* 100%* Operator (As of June 30, 2008)

Tanimbar Island

Masela Block

INDONESIA

AUSTRALIA
Timor Sea
Timor Sea Joint
Petroleum
Development Area
DarwinIn November 1998, INPEX CORPORATION won

On the basis of the evaluations andan open bid for and acquired a 100% working

reviews, the Company drilled four additional

interest in the Masela Block. Pursuing exploration

appraisal wells starting in May 2007 in orderactivities as an operator, the Company discovered

to enhance the accuracy of the reserve evalua-

the Abadi Gas Field during the drilling of the firsttion. At the same time, the Company is press-

exploration well in the block in 2000. This repre-

ing ahead with technical studies of the field

sented the first discovery of hydrocarbon (crude

development for future commercial LNG

oil and natural gas) in the Indonesian Arafura Sea.

production. Discussions also began in

Subsequently, two appraisal wells drilled in 2002

mid-2008 with BPMIGAS, the Indonesianconfirmed the expansion of the gas structure.

regulatory authority, regarding the plan ofdevelopment for the Abadi Gas Field.

18

INPEX Corporation

4 Berau Block, Tangguh LNG ProjectContract Area

Venture Company

Interest Owned

Berau

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

Ml Berau 22.856%
BP* 48.0%
Nippon Oil Exploration (Berau)
17.144%
KG Breau 12.0%

Tangguh Unit

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%* Operator (As of June 30, 2008)

Papua Province (INDONESIA)

Kaimana

Berau BlockGas field

In October 2001, MI Berau B.V., a jointof KG Berau Petroleum Ltd. shares in Octoberventure established by INPEX CORPORATION

2007, bringing the Company’s actual interest(44%) and Mitsubishi Corporation (56%),in the project to approximately 7.79%.

acquired an approximately 22.9% interest inLong-term sales agreements have been

the Berau Block, a hub in the Tangguh LNG

concluded, stipulating a total annual supply of

Project. MI Berau holds a 16.3% working

7.45 million tons of LNG to China, South

interest in the Tangguh Unit (including approx-

Korea and North America. In March 2005, theimately 7.17% actual interest held by theIndonesian government approved a develop-

Company), a unitized area between the Berau

ment plan for the Tangguh LNG Project andBlock, the adjoining Wiriagar Block and thean extension of the PSC through 2035. Part-

Muturi Block. In addition, MI Berau Japan Ltd.,

ners in the project are drilling production wells

a joint venture in which the Company has aand constructing LNG plants with production

44% share and Mitsubishi Corporation has adue to come onstream at the end of 2008.

56% share, acquired approximately 16.5%

INPEX Corporation

19

D
C
B
1

JPDA06-105 (Kitan Oil Field)
JPDA03-12, Bayu-Undan Project
WA-285-P (Ichthys) and the Surrounding Blocks

WA-10-L (Griffin Fields), WA-155-P (Part I) Block(Van Gogh and Ravensworth Fields) and Others

Asia & Oceania(Australia & JPDA)LNG shipping berth (Bayu Undan Project)

20

INPEX Corporation

1 WA-10-L (Griffin Fields), WA-155-P (Part I) Block(Van Gogh and Ravensworth Fields) and Others
Contract Area

Venture Company

Interest Owned

WA-10-L

INPEX Alpha, Ltd.
(Est. February 17, 1989)

INPEX Alpha 20%
BHPBP* 45%
ExxonMobil 35%

WA-12-L (Deep)

INPEX Alpha 18.67%
ExxonMobil* 81.33%

WA-155-P (Part I)

INPEX Alpha 28.5%
BHPBP* 39.999%
Apache 31.501%

Van Gogh Defined
Area

INPEX Alpha 47.499%
Apache* 52.501%

WA-155-P (Part II)

INPEX Alpha 18.67%
Apache* 81.33%

WA-357-P

INPEX Alpha 35%
Apache* 65%* Operator (As of June 30, 2008)

Indian Ocean

Van Gogh Field
WA-10-L
WA-357-P

Barrow Island

Griffin Fields
WA-155-P (Part II)
WA-12-L

Ravensworth Field

Onslow

WA-155-P (Part I)
Exmouth

AUSTRALIA

Oil field

In February 1989, INPEX CORPORATION

in the WA-357-P in July 2006. The Van Goghacquired a 20% working interest in WA-210-P

and Ravensworth Fields were discovered in

in offshore Western Australia. As a result of

WA-155-P (Part I). In April 2007 it was agreed tosubsequent exploration activities, the Griffin

commit to develop the Van Gogh Field, aiming

Fields were discovered and a production license

to commence crude oil production in April

for four blocks in WA-10-L was granted by the2009. The final investment decision concerning

Australian government. Commercial crude oil

the Ravensworth Field development was madeand natural gas production from these blocks

in November 2007, and development is undercommenced in January 1994.

way in conjunction with the Crosby Field andIn the area surrounding WA-10-L, theStickle Field located in the eastern adjacentCompany acquired working interests in WA-

license WA-12-R as part of the Pyrenees project,

155-P (Part II) and WA-12-L (Deep) in July 1994

aiming to commence crude oil production in theand in WA-155-P (Part I) in July 1999, as well as

second half of 2010.

INPEX Corporation21

2 WA-285-P (Ichthys) and the Surrounding Blocks
Contract Area

Venture Company

Interest Owned

WA-285-P

INPEX Browse, Ltd.
(Est. September 1, 1998)

INPEX Browse* 76%
TOTAL 24%

WA-274-P

INPEX Browse 20%
Chevron 50%
Santos* 30%

WA-281-P

INPEX Browse 20%
Santos* 47.8306%
Chevron 24.8300%
Beach 7.3394%

WA-341-P

INPEX Browse* 60%
Total 40%

WA-343-P

INPEX Browse* 60%
Total 40%

WA-344-P

INPEX Browse* 60%
Total 40%

WA-410-P

INPEX Browse 20%
Santos* 30%
Chevron 50%

WA-411-P

INPEX Browse 26.6064%
Santos* 63.6299%
Beach 9.7637%* Operator (As of June 30, 2008)

EAST TIMOR

Timor Sea

WA-285-P and others

DarwinAfter winning an open bid in August 1998,

initial stage is expected to total over 8 million

INPEX CORPORATION acquired a working

tons of LNG and roughly 1.6 million tons ofinterest in WA-285-P in offshore Western

LPG, but the Company will consider additional

Australia. Pursuing exploration activities as

LNG and LPG production in the future,

an operator, the Company discovered thedepending on the reserve capacity and thehighly promising Ichthys Gas and Condensate

market situation. At its peak, it is also esti-

Field in 2000.

mated that daily production will reachTo date, the Company has drilled eight
AUSTRALIA
Broomeexploratory wells, confirming the presence of

INPEX Corporation

Moreover, the Company has acquired

sufficient reserves for a large-scale gas andinterests in seven blocks surrounding

condensate project. Currently, the Company is

WA-285-P (WA-274-P, WA-281-P, WA-341-P,

vigorously engaging in feasibility studies

WA-343-P, WA-344-P, WA-410-P, and WA-411-P).

including engineering work, field data collec-

If a large volume of crude oil and natural gas

tion and environmental impact assessments,

is discovered in these blocks through explo-

as well as gas marketing for commercial LNG

rations, further expansion of the Company’s

production. The Company plans to produce

business, including synergy effects with the

LNG, condensate and LPG starting from theIchthys Gas and Condensate Field, can besecond half of 2013 or the first half of 2014.

expected.

Annual production and sales volume at the

22

100,000 barrels of condensate.

3 JPDA03-12, Bayu-Undan ProjectContract Area

Venture Company

Interest Owned

JPDA03-12

INPEX Sahul, Ltd.
(Est. March 30, 1993)

INPEX Sahul 19.0712244%
ConocoPhillips* 61.6624238%
Santos 19.2663518%

Bayu-Undan Unit

INPEX Sahul 11.274908%
ConocoPhillips* 57.150852%
Eni 10.985973%
Santos 11.390267%
Tokyo Timor Sea Resources(Tokyo Electric/Tokyo Gas)
9.198000%* Operator (As of June 30, 2008)

Abadi Field

East Timor

Timor Sea Joint
Petroleum Development Area

Darwin Gas Pipeline

DarwinBayu-Undan Gas-Condensate Field

In April 1993, INPEX CORPORATION acquired

interest holders of JPDA03-12 and the adja-

a working interest in JPDA03-12, located incent JPDA03-13, and joint development

the Timor Sea Joint Petroleum Development

began in the Bayu-Undan gas-condensate

Area (JPDA). The exploration in the contract

field, which straddles both contract areas.

area resulted in the discovery of oil and gas

Production of condensate and LPG com-in the Elang, Kakatua, Kakatua North, andmenced in 2004. LNG sales agreements stipu-

Undan structures.

lating a total supply of 3 million tons annually

Oil production in the Elang, Kakatua and
AUSTRALIA

Gas field

were concluded with Tokyo Electric Power

Kakatua North Fields began in 1998, but

Co., Inc. and Tokyo Gas Co., Ltd. in Augustceased in 2007 due to natural depletion. Well

2005. Sales of LNG commenced in February

abandonment is scheduled for completion by

2006, which is produced from natural gas

the end of 2008. In 1999, a final agreement

shipped to the Darwin LNG plant in the North-on unitization was reached between theern Territories, Australia.

4 JPDA06-105 (Kitan Oil Field)
Contract Area

Venture Company

Interest Owned

JPDA06-105

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

INPEX Timor Sea 35%
Eni* 40%
Talisman 25%* Operator (As of June 30, 2008)

East Timor

Abadi Field

JPDA06-105
Timor Sea Joint
Petroleum Development Area

Undersea gas pipeline
Kitan Oil Field
DarwinBayu-Undan Gas-Condensate Field

AUSTRALIA

In January 1992, INPEX CORPORATION acquired

made a declaration of commercial discovery to

an interest in JPDA06-105, located in the Timor

the Timor Sea Designated Authority for the

Sea Joint Petroleum Development Area (JPDA).

Joint Petroleum Development Area indicating

The subsequent explorations resulted in thethat the Kitan Oil Field was of a sufficientdiscoveries of oil in the Jahar structure in 1996

scale to allow for commercial development,

and in the Kuda Tasi structure in 2001. In Marchand in May of that year this field was

2008, oil was discovered by the exploration wellapproved as a development area. Going

Kitan-1, and the presence of a potentially com-

forward, the Company will proceed withmercial oil accumulation was confirmed by thedevelopment studies of the Kitan Oil Field,

appraisal well Kitan-2 drilled later that month.

aiming to formulate a development plan

In April 2008, based on the provisions of
Oil field
Gas field

within 12 months from receiving the approval.

the production sharing contract, the Company

INPEX Corporation

23

Eurasia(Europe & NIS)
1Offshore North Caspian Sea Block(Kashagan Oil Field and Others)

B

ACG Oil Fields
BTC Pipeline

Offshore (on ice) production facilities(Kashagan Oil Field)

24

INPEX Corporation

C1 Offshore North Caspian Sea Block (Kashagan Oil Field and Others)
Contract Area

Venture Company

Interest Owned

Offshore North
Caspian Sea

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

INPEX North Caspian Sea 8.33%
Eni* 18.52%
ExxonMobil 18.52%
Shell 18.52%
TOTAL 18.52%
ConocoPhillips 9.26%
KMG 8.33%* Operator (As of June 30, 2008)

KAZAKHSTAN

Kashagan

KairanCaspian Sea

Kashagan Southwest

AktoteOffshore North
Caspian Sea Block
Kalamkas

In September 1998, INPEX CORPORATION

history of oil exploration. Following the firstacquired an approximate 7.14% working

phase of the project (experimental program)interest in the Offshore North Caspian Sea

which is currently under way, full field develop-

Block that lies within the Republic ofment program is scheduled. The production

Kazakhstan’s territorial waters. In September

level is expected to reach a peak rate of 1.5

2001, the Company acquired additional

million barrels per day.

working interests, totaling approximately 8.33%.

In addition to the Kashagan Oil Field,

The Kashagan Oil Field was discoveredhydrocarbon reserves have been confirmed induring the first exploratory drillings in Septem-

four other structures: Kalamkas, Kashaganber 1999, representing the first discovery in theSouthwest, Aktote and Kairan. The Company

Kazakhstan-controlled area of the Caspian Sea.

aims to increase production volume from the

The Kashagan Oil Field is considered to have

Offshore North Caspian Sea Block throughgreat potential and is expected to become one

appraisal work for the existing structures alongof the largest fields ever discovered in thewith the development of the Kashagan Oil Field.

2 ACG Oil Fields
Contract Area

Venture Company

Interest Owned

Offshore Southwest
Caspian Sea

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

INPEX Southwest Caspian Sea 10.00%
BP* 34.14%
Chevron 10.28%
SOCAR 10.00%
Statoil Hydro 8.56%
ExxonMobil 8.00%
TPAO 6.75%
Devon Energy 5.63%
Itochu 3.92%
Hess 2.72%* Operator (As of June 30, 2008)

AZERBAIJANACG Fields

Baku

Sangachal

In April 2003, INPEX CORPORATION acquired

April 2008. Crude oil production for the entire

a 10% working interest in the Azeri-Chirag-block is expected to reach a combined peakGunashli Fields, known as the ACG Oilvolume of one million barrels per day in 2009.

Fields, located in the Republic of Azerbaijancontrolled area of the South Caspian Sea.

Oil Pipeline

Caspian Sea

Oil field

Deep Water
Gunashli Field
Chirag Field
Azeri Field

Along with the transportation via the Western
Route Export Pipeline running from Baku in

In addition to crude oil production in the

Azerbaijan to Supsa on the Black Sea coast, theChirag Field, the Company also began produc-

crude oil from these fields is being transportedtion in the Central Azeri Field in February 2005,

from Baku in Azerbaijan to Ceyhan in Turkey

in the West Azeri Field in December 2005 andvia the mainstay BTC Pipeline that commenced

in the East Azeri Field in October 2006, fol-

operations in June 2006, and then shipped

lowed by the Deep Water Gunashli Field infrom the Mediterranean Sea.
INPEX Corporation25

3 BTC Pipeline
Contract Area

Venture Company

Interest Owned

BTC Pipeline

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

INPEX BTC Pipeline 2.5%
BP* 30.1%
SOCAR 25%
Chevron 8.9%
Statoil Hydro 8.71%
TPAO 6.53%
Eni 5%TOTAL 5%Itochu 3.4%
ConocoPhillips 2.5%
Hess 2.36%* Operator (As of June 30, 2008)

In October 2002, INPEX CORPORATIONRUSSIA
Caspian Sea
Black Sea

GEORGIA
TbilisiAZERBAIJAN

ARMENIA
TURKEYBTC Pipeline
IRAN

CeyhanCYPRUSSYRIA
IRAQ

Mediterranean
Sea

26

INPEX Corporation

Baku

The Ceyhan marine terminal has sevenacquired a 2.5% interest in the BTC Pipeline

one-million-barrel-capacity crude oil storage

Project. The 1,770-kilometer BTC Pipeline,

tanks and a two-kilometer-long jetty capablewhich stretches from Baku in Azerbaijan toof docking two 300,000-ton tankers at the

Ceyhan on Turkey’s Mediterranean coast, via

same time.

Tbilisi, Georgia, and has a transport capac-

The Company is participating in the devel-

ity of one million barrels per day. The BTC

opment of the ACG Oil Fields in Azerbaijan

Pipeline commenced full-fledged operations inand the Kashagan Oil Field in Kazakhstan,June 2006.

both of which rank among the world’s major

Initially the BTC Pipeline was constructedoil fields. The completion of the BTC Pipeline

to transport crude oil produced in the ACG Oil

enables direct shipments by large-scale vessels

Fields in Azerbaijan. Now the partners havefrom the Mediterranean Sea, thereby avoiding

basically agreed to also transport crude oil

the Turkish straits, which are particularly prone

produced in the Kashagan Oil Field in

to shipping traffic congestion. This represents

Kazakhstan. Given this, the transport capacity

a major contribution to the transport of theof the BTC Pipeline will be increased to 1.2

ever-growing production of crude oil in

million barrels per day.

Azerbaijan and Kazakhstan.

Middle East
& Africa
DC

1

El Ouar I/II Blocks
West Bakr Block

ADMA Block

Offshore Democratic Republic of the Congo

B

Crude oil production well (West Bakr Block)

INPEX Corporation27

1 ADMA BlockContract Area

Venture Company

Interest Owned

Umm Shaif Field/Lower
Zakum Field

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

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

Upper Zakum Field

JODCO 12%ADNOC 60%
ExxonMobil 28%

Umm Al-Dalkh Field

JODCO 12%ADNOC 88%

Satah Field

JODCO 40%ADNOC 60%
(As of June 30, 2008)

ADMA Block

Umm Shaif Field
Das Island

Upper Zakum/
Lower Zakum Field

Zirku Island
Satah Field

In May 2004, INPEX CORPORATION madedevelopment operations. Crude oil production

Japan Oil Development Co., Ltd. (JODCO) a

has also continued steadily at two existing

wholly owned subsidiary by acquiring all thefields, the Umm Shaif and Lower Zakum, sinceshares held by the Japan National Oil

1962 and 1967, respectively. The crude oil is

Corporation through a share exchange.

transported by subsea pipeline to the islands

JODCO, established in 1973, holds an interestof either Das or Zirku for onward shipment.

in the ADMA Block, located in offshore Abu

Umm Al-Dalkh Field
Abu Dhabi

UNITED ARAB EMIRATESOil field

The development and operation of these

Dhabi, the United Arab Emirates, where it

fields are undertaken by the local operating

currently produces oil from five fields. Produc-companies, ADMA-OPCO and ZADCO. JODCO,

tion commenced in the Upper Zakum Field,

Abu Dhabi National Oil Company (ADNOC)

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

and the other participating companies hold the

Al-Dalkh and Satah Fields in 1982, 1985 andshares of these operating companies. JODCO

1987, respectively, in which JODCO wasdispatches its personnel, primarily engineers, todeeply engaged or directly took part inthese operating companies.

2 Offshore Democratic Republic of the Congo
Contract Area

Venture Company

Interest Owned

Offshore Democratic
Republic of the Congo

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

Teikoku Oil (D.R. Congo) 32.28%
Perenco* 50%
Chevron 17.72%* Operator (As of June 30, 2008)

MwambeMiasato
Libwa

MibaleMotobaLukami
Moko
TshialaMuandaBananaGCO
Soyo

Oil field

28

INPEX Corporation

In July 1970, INPEX CORPORATION acquired

The GCO Field was discovered in 1971,

a 17.03% working interest and participatedand oil production commenced in 1975.

in oil exploration and development in the

Including the GCO Field, 11 oil fields haveoffshore Democratic Republic of the Congo.

been discovered. In May 1995, the contract at

An additional interest was acquired in July

the Offshore Congo Block was extended to1972, increasing the Company’s current

2023, and the Company continues stableshare to 32.28%.

production at the existing oil field.

3 West Bakr BlockContract Area

Venture Company

Interest Owned

West Bakr

The Egyptian Petroleum
Development Co., Ltd.
(EPEDECO)(Est. July 17, 1970)

EPEDECO* 100%* Operator (As of June 30, 2008)

Mediterranean Sea

Gulf of Suez
Cairo

EGYPT

West Bakr

In June 1975, The Egyptian Petroleum

An additional new oil field was discovered­Development Co., Ltd. (EPEDECO), a joint

through additional exploration work con-venture established by INPEX CORPORATION,

ducted from 1989, with commercial produc-

Mitsui & Co., Ltd. and others, acquired ation commencing in 1990. In July 2005, the

100% working interest in the West Bakr

contract term was extended through 2020.

Block, located in a desert region on the west

The Company maintains stable production

bank of Egypt’s Gulf of Suez, and conducted

operations in existing oil fields while pursuing

exploration activities as an operator of thepossibilities for increased production throughproject. As a result, three oil fields wereadditional exploration activities.

discovered and commercial production has
continued since 1980.

4 El Ouar I/II Blocks
Contract Area

Venture Company

Interest Owned

El Ouar I/II

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

Teikoku Oil Algeria 10.29%
Sonatrach 67.33%
Eni* 22.38%* Operator (As of June 30, 2008)

In November 2001, INPEX CORPORATION

condensate in El Ouar I in 1997, and in El

acquired a 10.29% working interest in the El

Ouar II in 2001. Feasibility studies for theOuar I/II Blocks, located in onshore easterncommercial development of natural gas are

Algeria. The drilling of exploration wells

currently under way.

­confirmed the existence of natural gas and
ALGERIALIBYAEl Ouar Block

INPEX Corporation29

1
Joslyn Oil Sands Project
Ship Shoal 72, Main Pass 117/118 and West Cameron 401/402

D
Copa Macoya and Guarico Oriental Blocks

Americas
Frade BlockGas processing plant (Copa Macoya Gas Field)

30

INPEX Corporation

BC

1 Joslyn Oil Sands ProjectContract Area

Venture Company

Interest Owned

OSL 7280060T24

INPEX Canad, Ltd.
(Est. November 28, 2006)

INPEX Canada 10%
Total* 74%
EnerMark 15%
Larichina 1%

OSL 7405070799
OSL 7404110452* Operator (As of June 30, 2008)

In November 2007, INPEX CORPORATION

230,000 barrels per day at the second phaseacquired a 10% interest in the Joslyn Oilof production.

Sands Upstream Project in Alberta, Canada,
including associated pipeline rights.
Since 2006, the Joslyn Oil Sands Upstream
Athabasca River

Joslyn Oilsand Lease

Alberta
Fort McMurray

Along with acquiring an interest in the Oil
Sands Upstream Project, the Company has
acquired the right to participate in the con-

Project has produced bitumen using Steamstruction and operation of the upgrader toAssisted Gravity Drainage (SAGD) technology.

produce synthetic crude oil (Upgrader project)

In the future, as the first phase of large-scaleplanned by TOTAL in Edmonton, Alberta. As

development, the Company plans to conduct

the first phase in this project the Company

oil sand mining development on the scale ofplans to build an upgrader with total produc-

100,000 barrels a day early in the nexttion capacity to 130,000 barrels of synthetic

decade, later increasing daily production to

crude oil a day before 2015.

2 Copa Macoya and Guarico Oriental Blocks
Contract Area

Venture Company

Interest Owned

Copa Macoya

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

Teikoku Oil and Gas Venezuela 70%
PDVSA 30%

Guarico Oriental

Teikoku Oil and Gas Venezuela 30%
PDVSA 70%
(As of June 30, 2008)

Copa Macoya Block/Guarico Oriental Block

CaracasGeorgetown
VENEZUELA

BogotaGUYANA

COLOMBIA
BRAZILINPEX CORPORATION participated in theBased on the new policy, the Company

bidding rounds and was awarded a 100%

established gas and crude oil venture compa-

working interest in a central onshore area,

nies jointly with Petroleos de Venezuela, S.A.

the East Guarico Block, in July 1992. The(PDVSA), the Venezuelan national petroleum

Company took part in the reactivation ofcompany, and continued the gas business incrude oil and natural gas fields, exploration

the Copa Macoya Block and the crude oiland development activities as an operator

business in the Guarico Oriental Block fromunder an operating service agreement (OSA).

April 1, 2006, which replaced the East Guarico

In 2006, the Venezuelan government

Block. With the shift to joint venture agree-changed its policy to revise the existing OSAs

ments, the contract periods of the two blocks

to joint venture agreements.

were extended to 2026.

INPEX Corporation31

3 Frade BlockContract Area

Venture Company

Interest Owned

Frade Block

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

FJPL 18.2609%
Chevron* 51.7391%
Petrobras 30%* Operator (As of June 30, 2008)

CamposBRAZIL
Macae

Frade Block

Atlantic Ocean

In July 1999, Frade Japão Petróleo Limitada

The Frade Oil Field was discovered in 1986

(FJPL), a joint venture established by INPEX

and the reserves volume was evaluated by two

CORPORATION and Sojitz Corporation,

appraisal wells in 2001, immediately after theacquired a 12.75% working interest in the

Company’s participation in the block.

Frade Block in Brazil’s offshore Northern

In June 2006, the final investment decision

Campos Basin. In July 2001, FJPL increased

was made for the development of the Fradeits working interest to 15%, and in June

Oil Field, and the Company is engaging in

2006, FJPL’s total working interest rose todevelopment and pursuing commercial pro-approximately 18.3% in accordance withduction in 2009. This project will realize thecontractual agreements.

first ever crude oil production in Brazil by aJapanese enterprise.

4 Ship Shoal 72, Main Pass 117/118 and West Cameron 401/402
Contract Area

Venture Company

Interest Owned

Ship Shoal 72

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

Teikoku Oil (North America) 25%
PetroQuest* 50.5%
Other 24.5%

Main Pass 117/118

Teikoku Oil (North America) 10%
Hunt* 50%
Other 40%

West Cameron 401

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

West Cameron 402

Teikoku Oil (North America) 25%
PetroQuest* 25%
Other 50%
* Operator (As of June 30, 2008)

West Cameron
401/402

UNITED STATES OF AMERICA

Main Pass
117/118

MEXICO

Ship Shoal 72

32

INPEX Corporation

INPEX CORPORATION participated in oil and

Shoal 72. Following this achievement, produc-

gas field development projects in the shallow

tion was also commenced in Main Passwaters of the Gulf of Mexico in April 2006. In

117/118 in April 2007 and in West Cameron

July of the same year, the Company com-

401/402 in February 2008.

menced the production of oil and gas in Ship

JapanMinami-Nagaoka Gas Field and Domestic Natural Gas Business1

Shizuoka LineINPEX Corporation

33

1 Minami-Nagaoka Gas Field and Domestic Natural Gas Business
Joetsu Shinkansen LineSea of Japan

Mitsuke City
Echigo Line

Minami-Nagaoka Gas Field
Shinetsu honsen

Sekigahara Gas Field(Underground Storage)

Nagaoka City

Higashi-Kashiwazaki
Gas Field

Joetsu Line
Ojiya City

Gas field

LNG import terminal(scheduled for construction)

Shin Oumi Line
(under construction)

Minami-Nagaoka Gas Field
Gunma Interconnection Line
(INPEX/Tokyo Gas: planned)

Tokyo Line

Ryomo Line
Matsumoto Line

Iruma Line

Kofu Line
Shizuoka Line

Minamifuji Line
Sodeshi LNG Terminal(INPEX/Shizuoka Gas/Tokyo Gas)

[Shizuoka Gas] Second Suruga Trunk Line
[Shizuoka Gas]

Domestic pipeline network

34

INPEX Corporation

1.7 billion m3, a 40% increase over the previ-

production in Japan—even though over 20

ous year, due to the expanding supply area

years have passed since the commencement

through aggressive pipeline development inof production in 1984—the Minami-Nagaoka

new areas. This represents a threefold increase

Gas Field, which INPEX CORPORATION discov-in sales volume compared to 1996. Goingered in 1979, is the largest gas field in Japan.

forward, in the medium- to long-term, annual

Produced and processed natural gas,demand is forecast to reach the scale of 2 billion

which is transported through a 1,300 km

Kashiwazaki City

Shin Tokyo Line

Making up approximately 50% of total gas

to 3 billion m3.

trunk pipeline network that stretches across

The Company is vigorously reinforcing

the Kanto-Koshinetsu region surrounding the

production facilities in addition to enhancing

Tokyo metropolitan area, is supplied to citypipeline transport capacity with the aim ofgas companies and industrial customers along

shoring up growth. Furthermore, we started

the pipeline network.

preparations to build an LNG import terminal

In recent years, the demand for natural gas

in Joetsu City, Niigata Prefecture. We will

has grown substantially in Japan because it isexpand our gas business, focusing on thecleaner and more environmentally friendly

establishment by the end of 2013 of a “natu-

compared with other fuels and competingral gas value chain” that organically connects

fuel prices have soared. The Company’s sales

the domestic infrastructure with our group’s

volume for fiscal 2007 reached approximately

overseas natural gas assets prospectively.

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

MissionHealth, Safety and Environment (HSE) Policy

The mission of the INPEX Group is to provide a

The INPEX Group is a global, independent energy

stable and efficient supply of energy to our cus-company and its vision is to provide a stable andtomers by exploring and developing oil and natural

efficient supply of energy to customers. We recog-gas resources throughout the world. Through its

nize our responsibility to sustainable development

business, we aim to become an integrated energy

and, in this regard, we aim to protect the health andcompany, which contributes to the community andsafety of all those associated with our businessmakes it more livable and prosperous.

activities and to minimize adverse impacts on theenvironment.

Corporate Social Responsibility Policy

To accomplish this, we will:

The INPEX Group conducts our business efficiently
and proactively with a long-term perspective.

• Comply with all applicable HSE laws and regulations,

Guided by the leadership of top management, weand apply our standards where laws and regulations

are committed to fulfilling our corporate social

do not exist or are considered insufficient.

responsibilities. Our key principles include:
1 Deliver energy in a stable and efficient manner.
B Comply with laws, rules and regulations andadhere to ethical business conduct.
C Communicate timely and openly with shareholders,

employees, customers, business partners andother stakeholders.
D Value the individuality of our employees, secure asafe, healthy and worker-friendly environment,
and provide opportunities for career development.
E	Recognize our responsibility to help preserve theenvironment and contribute to sustainable
development.
F Contribute to the development of our hostcountries and communities based on theunderstanding of cultural diversity.

• Implement and maintain HSE management systems,
and perform regular audits of legal compliance andprogress of our HSE activities to achieve continuous
improvement in our HSE performance.
• Identify and assess health and safety hazards andeliminate or, if not possible, reduce risks to as low
as reasonably practicable to prevent incidents.
• Conduct environmental assessments and promote
efficient energy consumption to reduce adverse
environmental impact.
• Maintain and regularly test emergency plans toensure a quick and effective response in the eventof emergencies.
• Provide resources that will enable our employees
to meet HSE objectives and targets.
• Provide training in HSE activities and safe driving
to ensure all employees are aware of their responsibilities and accountabilities in these areas.
•	Require contractors to manage HSE in accordancewith this Policy, and to achieve agreed HSE targets.
• Communicate openly on HSE activities withstakeholders.

INPEX Corporation

35

Corporate Social Responsibility

INPEX CORPORATION carries out E&P business around the globe with commitment to the protection andpreservation of environment and to the safety and well-being of our employees. To turn this commitment
into action, we have implemented our own HSE (Health, Safety and Environment) Management System as a
guiding framework for undertaking a series of initiatives.
In order to develop energy resources efficiently in different parts of the world, we must have a dialogue
with those who live in the regions in which we operate and solicit their understanding and support. In
return, we make a positive contribution to making their lives better now and for the future, and to helping
develop their community.
Overview of HSE Management System

The implementation framework for the HSE Management

A stable supply of energy can be disrupted for any

System has been taking shape to achieve HSE objectives.

number of reasons. Of most concern to us is the risk ofUnder the Group’s HSE Management System, a businessincidents that not only could interrupt the energy supply,

unit that is in charge of an operator project is called an

but also could cause environmental pollution, jeopardizing

Operational Organization. Each Operational Organization

our business continuity. In light of this, the Group consid-

has its own HSE Committee, which is responsible forers environmental conservation and the prevention of suchpromoting HSE activities in accordance with the HSE Policy

incidents to be inseparable from each other. With the aim

for the project that the Organization undertakes insideof improving health (H), safety (S) and the environmentand outside Japan.

(E), we operate our own HSE Management System, which

Since fiscal 2008, we have started to take another step

enables us to continuously enhance our HSE performance.

toward establishing a management system in which each
Operational Organization collaborates with the Head

Implementation Framework for
HSE ­Management System

Office to ensure the health and safety of workers engaged
in projects in the event of an emergency.

In October 2007, in an effort to promote systematic

In May 2008, we held our 1st Annual HSE Meeting, ingroup-wide HSE initiatives, we established the Corporate

which senior management from the Head Office and

HSE Committee, which was tasked with formulating

heads of Operational Organizations met to develop a

guidelines, procedures, and objectives regarding HSE.

greater awareness and knowledge of HSE management,
and to ensure HSE objectives for fiscal 2008 were understood throughout all Organizations. Representatives of all

Corporate

Operational Organizations in Japan, Australia, Egypt,
Naoki Kuroda,
President

Indonesia, Libya and Venezuela attended the meeting.
In Japan, the head of Domestic Project Division and
HSE Managing Supervisors (Safety Officers) convene a

Masatoshi Sugioka,
Director for HSE

Safety Steering Committee to set specific HSE objectives,
Corporate
HSE Committee

and monitor and review their achievement.
In addition, each office in Japan has a Safety Committee
chaired by an HSE Managing Supervisor, which comprises

Operational
Organization

Operational
Organization

Operational
Organization

Operational
Organization

HSE Field Supervisors (Safety Administrators) and safety
personnel. The Safety Committee at each office is responsible for setting HSE objectives for the office, devising an

36

Operational
Organization
Representative

Operational
Organization
Representative

Operational
Organization
Representative

Operational
Organization
Representative

HSE
Committee

HSE
Committee

HSE
Committee

HSE
Committee

INPEX Corporation

implementation plan, and monitoring and reviewing progress made toward these objectives, based on the decisions
made by the Safety Steering Committee.

Regional and Community Development

In pursuit of these objectives, we are undertaking the

The INPEX Group conducts a social impact assessment

following support initiatives: (1) Deploying a community

when it begins a project; it reviews the economic anddevelopment model called Silvo Fisheries, intended tosocial effects the project will have on a community, andconcurrently pursue the community’s environmental pres-takes action to mitigate any potential adverse impacts ofervation and economic development in agriculture andthe project. Measures taken to mitigate such impacts are

fishery. Under this model, the area will be lined with alter-

continuously monitored for their effectiveness. During thisnating shrimp ponds and mangrove forests; (2) Assistingprocess, information concerning the project is disclosed tomunicipal authorities in developing and implementing a

the community so that it knows the community can bepolicy on resolving issues over land-use rights; (3) Helping

aware of the project activities. We also listen to the com-municipal authorities become better organized and carrymunity to understand its needs, and this information isout human resources development; and (4) Enlightening

used to formulate community development programs.

local residents on environmental preservation.
In 2007, we conducted surveys on the pilot farm,Participating in the Environmental­Conservation Program for the
Mahakam Delta

engaged in public relations activities at wide-ranging

The Company participates in the Community Empowerment

government agencies, municipal authorities and educa-

Programs Delta Mahakam in the Republic of Indonesia,

tional institutions.

which runs from 2007 through 2012, in collaboration with
the United Nations Development Program and others.
This program is intended to restore and conserve theinternational conferences, published newsletters, andprovided environmental education and enlightenment for

Our plans for 2008 include analyzing and assessing theecosystem in the Mahakam Delta, and identifying the area
in which mangrove forests were most severely damaged.

mangrove forests in the Mahakam Delta, that wereWe also plan to devise specific plans to implement theseverely damaged by the development of shrimp ponds in

Silvo Fisheries method and look into local restrictions andthe area, and to help the local economy and community

government ordinances.

achieve sustainable development.

The Group is committed to contributing a total of U.S.

The delta surrounding the offshore Mahakam Block, in$1 million to the program over five years. We will continue

which the Company has a working interest and which has

to support the program by working within the Executive

become one of the Group’s major blocks, has a prominent

Committee—the project’s highest decision-making body—area of mangrove vegetation that plays an important role in

to work out action plans and monitor theirmaintaining the biodiversity of the surrounding areas and of

implementation.

absorbing CO2. It also provides a source of drinking waterand serves as a transportation route for natural resources.
Following the Asian financial crisis of 1997, shrimp
ponds mushroomed everywhere in the area, as the shrimp
business was seen as a lucrative source of foreign currency. As a result, the majority of the mangrove forests
vanished from the delta, up to 80% of which was turned
into shrimp farms. Worse yet, chemicals used in the farms
to protect shrimp from diseases polluted the delta.
The objectives of this program are not only to restore

The Mahakam
Deltaand protect the mangrove forests, but ultimately to assist
the local community and municipal authorities in restoringand protecting the environment of the entire Mahakam
Delta on their own, and to help the local economy achievesustainable development.
Meeting with government officials
and UNDP
For details, please refer to the Inpex Group’s CSR Report 2008.
INPEX Corporation

37

Corporate Governance

INPEX CORPORATION recognizes the importance of improving the efficiency and soundness of its management and enforcing compliance in order to continue increasing corporate value and maintain the trust of its
stakeholders including shareholders and society at large, and will continue to reinforce corporate governance.

Corporate Governance Structure

At the same time, however, the shareholder corporations

Directors and Board of Directors’ Meetingare involved in businesses that overlap with those of the

The Board of Directors of INPEX CORPORATION (theCompany. The Company therefore recognizes that it must­“Company”) is composed of 16 members, four of whom

pay particular attention to corporate governance to avoid

are outside directors. The Board of Directors meets once a

conflicts of interest in connection with competition andmonth and when necessary to discuss and make decisions

other matters.
To this end, all Company directors, including the interlock-regarding important operational matters and oversees theing directors, are required to sign a written undertaking to

execution of directors’ operations.
The four outside directors (“interlocking directors”) havecarry out their duties as officers of the Company appropriately

many years of management know-how and experience in theand with the highest regard for the importance of such matters

Company’s business and are able to offer objective, profes-as their obligations in connection with non-competitive prac-sional advice regarding operations. For this reason, they weretices under the Japanese Companies Act, the proper manner

asked to join the Board of Directors to contribute to thefor dealing with conflict of interest, and confidentiality.

development of the Company’s business. The four interlocking directors concurrently serve as directors or advisors ofManagement Committee

Japan Petroleum Exploration Co., Ltd., Mitsubishi Corporation,

The Management Committee has been established to speed

Mitsui Oil Exploration Co., Ltd. and Nippon Oil Corporation

up decision-making and resolve matters that do not require a(“shareholder corporations”), respectively.

decision by the Board of Directors, and to conduct discussions

Corporate Governance System
Shareholders’ Meeting
Appoint/dismiss

Appoint/dismiss

Appoint/dismiss

Independent Auditors

Board of Statutory Auditors
5 Statutory Auditors
Including 3 Outside Statutory Auditors

Accounting audit

Audit

Board of Directors
16 Directors
Including 4 Outside Directors

Audit

Accounting audit

Appoint/
supervise/dismiss

Appoint

Management Committee
President
ReportAudit Unit

Internal audit

Corporate Officers
10 Concurrent Directors and Corporate Officers
17 Corporate Officers Total 27
Divisions and Subsidiaries

38

INPEX Corporation

Compliance
Committee

that facilitate the Board’s decisions by conducting meetings

Internal Control Systemon a weekly and an as-needed basis.

System to Ensure that Directors and Employees
Conduct Business in Compliance with Laws andStatutory Auditors and Board of Statutory Auditors

Regulations as well as with the Company’s Articles of

The Company employs a statutory auditor system. The Board

Incorporationof Auditors is composed of five members, including three

In order to ensure that directors and employees conductfrom outside the Company.

business in compliance with laws and regulations as well as

The statutory auditors attend meetings of the Board ofwith the Company’s Articles of Incorporation, the Company

Directors and the Management Committee, conduct inter-has formulated a corporate social responsibility policy and isviews with departments as necessary and audit the businessbuilding a structure to make sure that all concerned thor-

execution of directors with regard to overall operations andoughly abide by its contents.

individual projects based on reports from relevant depart-To this end, the Company has appointed a representativements and other information. The statutory auditors also

director with compliance responsibilities. Simultaneously, thereceive reports related to regular and special audits from theCompany established a Compliance Committee chaired byindependent auditors and regular reports from the Internal

the officer responsible to ensure that directors and employees

Audit Unit on the status of internal audits.

remain in compliance with laws and regulations as well as theTwo of the three outside auditors concurrently serve as

Company’s Articles of Incorporation in the execution of theirdirectors of Japan Petroleum Exploration Co., Ltd. andbusiness duties. Furthermore, the Company set up an internal

Marubeni Corporation and are involved in businesses that

notification system with the responsible in-house depart-overlap with those of the Company.

ments and an outside specialist (lawyer) as points of contact.
In order to maintain an effective compliance system andInternal Audit

related in-house rules, the Company also makes timely

The Internal Audit Unit was established as an internal audit

improvements by implementing inspections and evaluations

division independent from business departments and directlyof these systems through audits carried out by the Internal

responsible to the president, to ensure the appropriateness

Audit Unit, which reports directly to the president.

and efficiency of business activities. The Internal Audit Unit
examines and evaluates the status of management bodies,

System for Administration and Storage of Information

the efficiency of business operations and other matters, pin-

Regarding Execution of Directors’ Business Duties

pointing problem areas, making necessary reports and con-

In accordance with laws and regulations, the Company’s

ducting follow-up audits to confirm the status of

Articles of Incorporation and in-house rules, directors admin-

improvements. The Internal Audit Unit also contributes toister and store documents as well as information regarding

proper operational management by exchanging opinions withthe execution of their business duties.

independent and statutory auditors as necessary.

Management System for Losses and Other Risks
Accounting Audit

To deal with all risks relating to the Group’s business activities,

The Company receives accounting audits from Ernst & Young

the Company has designated a division to support risk man-

ShinNihon in accordance with the Companies Act and theagement conducted by directors and formulated a basic risk

Financial Instruments and Exchange Law. Certified Publicmanagement policy. In concert with these initiatives, the

Accountants (CPAs) and assistants for audits during the fiscal

Company has established a group-wide risk management

year under review are described as follows.

system, which is handled in liaison with other Group compa-●

   Names of CPAs:

nies based on the Group Management Regulations.

●   Accounting audit members:

Kenji Endo, Yusuke Kosugi, Takeshi Nakano
Six CPAs, 19 assistant CPAs and four others

With regard to the management of risks relating to everyday business operations, the Company makes timely improvements by implementing inspections and evaluations of thesesystems through audits carried out by the Internal Audit Unit.

INPEX Corporation

39

System to Ensure the Efficient Execution of Directors’

System to Ensure Efficient Audit Implementation

Business Duties

Upon the implementation of audits, the Company ensures

To ensure efficient business execution, directors engage inclose coordination with outside specialists including lawyers,business operations with particular attention to the following:

CPAs and certified tax accountants.

a. Holding the Management Committee, composed of full-

In addition, the Company is in close liaison with the inter-time directors, on a weekly and an as-needed basis in a

nal audit system to enhance audit efficiency by receiving

timely manner, and performing their duties promptly

reports as required.

and appropriately.
b. For everyday business duties, responsibility is delegated inaccordance with rules governing job demarcation andadministrative authority, those responsible at each level
performing their duties in a prompt manner.

System to Ensure Appropriate Business Conduct in a
Business Group Composed of the Company and Its
Subsidiaries
In accordance with the Group Management Regulations,
important matters concerning the Company’s subsidiaries arereported on and approved at the Company’s Board of Directors’
meetings as well as at the Management Committees.
The Company and its Group companies coordinate risk
management, compliance control measures and internal audits.

Special Class Share
The Company’s Articles of Incorporation stipulate that certain
major corporate decisions require a resolution by the holder ofa special class share in addition to the approval of the shareholders’ meeting or Board of Directors. The special class shareis issued to the Minister of Economy, Trade and Industry.
Major corporate decisions include the appointment andremoval of directors, the disposition of material assets,amendments to the Articles of Incorporation, mergers, shareexchanges or share transfers, capital reductions and dissolutions. Director appointments or removals, mergers, shareexchanges or share transfers require a resolution by theholder of special class share, provided 20 percent or more of
the voting rights attached to shares of common stock areheld by a single non-public entity or a single non-public entity
and its joint shareholders.

Matters Concerning Auditor-approved Employees

The Minister of Economy, Trade and Industry announced

Appointed to Assist Auditors’ Duties

the establishment of guidelines for the exercise of special class

A Company employee concurrently serves as an auditor’sshareholders’ veto rights (with respect to decisions notassistant. The assistant concerned is engaged in business inapproved by a resolution of the special class shareholder). The

accordance with auditors’ instructions.

Minister of Economy, Trade and Industry may veto any one of
the aforementioned major corporate decisions only to the

Matters Concerning the Impartiality of the Employee

extent that it determines a proposed action or transaction (1)Mentioned in Preceding Clause

will likely result in the Company being managed in a manner

Any changes in personnel involving the auditors’ assistant areinconsistent with its goal of securing a stable energy supply fordiscussed with auditors.

Japan as a national flag company; (2) will likely adversely affect
the goal of efficiently securing a stable energy supply for Japan

System for Directors and Employees to Report toas a national flag company; or (3) may affect the exercise of

Auditors, Other Systems for Reporting to Auditors

voting rights of special class shareholders.

Directors and employees report and provide information to

The exercise of veto rights by special class shareholders is,

auditors for matters stipulated in law, matters that may cause

therefore, restricted. With the existence of this class of share,significant impact on the Company and its Group companies,

however, the Company can minimize the risk of losing man-and other matters that are judged as necessary to be reported

agement control to foreign-owned concerns and an unsolic-in relation to the execution of auditors’ business duties.

ited takeover for speculative reasons. Moreover, because the

Auditors shall always obtain job-related information byscope of the veto is limited and guidelines have been set for

attending the Board of Directors’ meetings and other impor-the exercise of veto rights, the special class share is an abso-tant in-house meetings as well as receiving in-houselute minimum necessary measure that is highly transparent

approval documents.

and does not unjustly impinge on the Company’s ability tooperate with flexibility and efficiency.

40

INPEX Corporation

Risk Management and Corporate Ethics

Regular Number of Directors

The Company recognizes that two factors are vital to increase

The Company’s Articles of Incorporation stipulate that thecorporate value amid drastic changes in its operating environ-number of directors shall be up to 16.

ment: forestalling and mitigating losses by properly managing
strengthening trust with customers, investors and other par-Conditions for Appointment and Removal of
Directors

ties. As such, the Company will strive on an ongoing basis to

The Company’s Articles of Incorporation stipulate that theenhance its risk management.

appointment of directors shall be approved by a majority ofrisk inherent in its business operations; and maintaining andCompliance is also a vital element of continuous corporate

the voting rights with the presence of shareholders represent-

development. The Company will methodically develop its

ing at least one third of all shareholders. The Articles of Incor-

compliance system to ensure strict observance of laws, regu-

poration also stipulate that the appointment of directors shalllations and corporate ethics.

not be determined by a cumulative vote.
The Articles of Incorporation also stipulate that theInformation Disclosure

appointment and removal of directors requires approval fromThe Company seeks to improve management transparency

a General Meeting of Special Class Shareholders in addition

and accountability by disclosing information in a timely fash-

to that from an ordinary General Meeting of Shareholders.

ion through IR activities directed at shareholders and inves-

For details, please refer to the preceding clause, “Special

tors, the shareholders’ meeting, its Web site, public relations

Class Share.”activities and in other ways, and will constantly strive to

Director Compensation

Matters Arising from the General Meeting of
Shareholders Resolved at Board of Directors’Meetings

In the fiscal year ended March 31, 2008, the Company’s

In accordance with Article 165, Paragraph 2 of the Compa-

compensation to directors and auditors was as follows:nies Act, the Company may acquire its own shares by resolu-¥587 million for 15 directors(including ¥11 million for 3 outside directors)

tion of the board of directors in pursuit of flexible

enhance these efforts.

¥76 million for 5 auditors(including ¥28 million for 3 outside auditors)
Notes: (1) The amount of compensation for directors does not include theportion of salaries for those who concurrently serve as ordinary
employees. However, there was no payment of salaries todirectors for concurrent service as ordinary employees during
the fiscal year under review.
(2) The total compensation includes a ¥113 million bonus (¥104
million for directors and ¥9 million for auditors) approved at thesecond Ordinary General Meeting of Shareholders held on June25, 2008 as well as an allowance for directors’ retirement
benefits.
(3) Compensation was not paid to one of the 16 directors as of theend of Fiscal 2007.

implementation of future capital policy.
Furthermore, in order for directors and statutory auditors
to fulfill the roles expected of them and in accordance with
Article 426, Paragraph 1 of the Companies Act, the Company
may, within the limits of laws and ordinances, exempt directors and statutory auditors (including a person who was a
director and a statutory auditor in the Company) from liability,
by resolution of the board of directors.
For the purpose of implementing flexible profit return toshareholders, the Company may make cash distribution (hereand hereinafter, “interim dividends”) to the shareholders orpledge right holders registered or recorded in the final share-

Auditor Compensation

holders’ register, and the holders of fractional shares regis-

In fiscal 2007, the Company’s compensation to Ernst & Young

tered or recorded in the register of fractional shares as of

ShinNihon was as follows:

September 30 of each year in accordance with Article 454,

Compensation based on Article 2, Paragraph 1 of the Certified
Public Accountant Law (Act No. 103 of 1948): ¥70 million

Paragraph 5 of the Companies Act.

Other compensation:¥26 million

Note: Other compensation primarily consists of payments for advisory
services related to the establishment of an internal control system forfinancial reporting.

INPEX Corporation

41

Management Team

Representative Director, Chairman
1	Kunihiko Matsuo

Representative Director
B	Masatoshi Sugioka

Representative Director, President
3	Naoki Kuroda

1

2

3

Director
4 Hisatake Matsuno
Director
5	Katsujiro Kida
Director
6	Mutsuhisa Fujii
Director
7 Seiji Yui

4

5

6

Director
8	Kunio Kanamori
Director
9	Masaharu Sano
Director
 Shunichiro Sugaya
Director
 Seiya Ito
Director	Takahiko Ikeda

7

8

9

Statutory Auditor
 Shigeru Hayashi
Statutory Auditor
 Haruhito Totsune
Statutory Auditor
 Shigeru Watanabe
Directors (Adjunct)	Kazuo Wakasugi
J

K

L

Hisanori Yoshimura
Yoshiyuki Kagawa
Shigeo Hirai
Statutory Auditors (Adjunct)

Hiroshi Sato
Fumiya Kokubu

M

42

INPEX Corporation

NO

Financial Section

Contents
Management’s Discussion and Analysis ofFinancial Condition and Results of Operations ..............................................44
Consolidated Balance Sheets .........................................................................56
Consolidated Statements of Income . .............................................................58
Consolidated Statements of Changes in Net Assets . ......................................59
Consolidated Statements of Cash Flows . .......................................................60
Notes to Consolidated Financial Statements ...................................................61
Report of Independent Auditors . ...................................................................75

INPEX Corporation

43

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

Overview
During this fiscal year, the overall Japanese economy has shown a steady recovery, bolstered by strong global economic
growth, driven by buoyant economies in the United States and China. However, the outlook for Japanese economy has
become more uncertainty due to the slowdown in the U.S. economy stemming from the so-called subprime loan issue,
soaring natural resources prices and appreciation of the yen.
Under this business environment, global crude oil prices, an important factor that affects our Group’s businesses,
underwent a year of great change throughout the fiscal year, where the price of WTI (West Texas Intermediate) rose by
US$35.64 per bbl. WTI stalled at US$65.94 per bbl in April, then firmed up again due to political uncertainty in Nigeria
and low-level of gasoline stock in United States. From September to December, the price continuously increased due togeopolitical factors such as the strengthening of U.S. sanctions against Iran, an influx of speculative money in the oil
futures market due to concerns stemming from the weak dollar and inflation related to the subprime loan issue. In
January, the WTI price rose over the US$100 per bbl mark. After setting a record high of US$111.80 per bbl in March,
the price dropped toward the end of the month and closed at US$101.58 per bbl at the fiscal year end. Meanwhile,
domestic crude oil and petroleum product prices followed a similar pattern of global price movements; the Group
recording an average sales price for crude oil for the year ended March 31, 2008 of US$80.07 per bbl, an increase of
US$17.91 from the previous fiscal year.
The foreign exchange market also has a large impact on our business performance. The U.S. dollar began to be
traded at the lower end of the ¥118 range and hovered around the lower end of the ¥120. From early July, due to thesurfacing of the subprime loan issue, the U.S. dollar dropped against the yen and the U.S. stock market dropped invalue. Amid the concerns of U.S. economy recession, continuous interest rate reduction by the Federal Reserve Board(FRB) caused to close interest spread between U.S. and Japan, and the exchange rate touched ¥95 at one point. Until
the fiscal year end, the exchange rate rebound slightly for stronger dollar and as a result Telegraphic Transfer Middle
rate (TTM) closed at ¥100.20 which was ¥17.89 appreciation compared to the fiscal year end of March 31, 2007. The
average exchange rate for the Group’s sales for the year ended March 31, 2008 was ¥113.71, a ¥3.19 appreciation.
For the year ended March 31, 2008, the Group recorded net sales of ¥1,203.0 billion, ordinary income of ¥685.8
billion and net income of ¥173.2 billion mainly due to the net effect of the following factors: prices of oil and natural
gas rose and sales volume increased, while appreciation in the average exchange rate of the yen for the year caused
sales to decline.
As of March 31, 2008, our total net proved reserves were 1,645 MMboe, and for the year ended March 31, 2008,
our net annual production was 423 Mboe per day. Net proved reserves comprised 1,088 MMbbls of crude oil, condensate and LPG, and 3,346 Bcf (billion cubic feet) of natural gas as of March 31, 2008. Net proved undeveloped reserves
accounted for 28.3% of net proved reserves. Net production for the year ended March 31, 2008 averaged 242 Mbbls
per day of crude oil, condensate and LPG, and 1,089 MMcf per day of natural gas.

Our Method of Accounting for Types of Arrangements
Most of the net sales and income of our Group come from the crude oil and natural gas business. Currently, we havemainly entered into two types of arrangements in connection with our oil and gas business: production ­sharing
contracts (PSCs) and concession agreements which include domestic mining rights and overseas permits, licenses orlease agreements.

44

INPEX Corporation

Production Sharing Contracts
Cost Recovery and Production Sharing
The allocation of crude oil and natural gas production among the host country’s government (or government entity)
and contractors (including ourselves) must first be determined under PSCs.
Different PSCs provide for different formulas for allocating oil and gas production among the host country’s government and contractors. The following discussion is based on one type of PSC arrangement that applies to projects inIndonesia, for which the Company concludes many agreements. Under this type of PSC, at the end of each fiscal year,
total production for that year is allocated to:(1) “first tranche petroleum,” which is a prescribed portion of total production allocated between the host country’s
government and the contractors pursuant to prescribed percentages;(2) “cost recovery portion,” which is the oil and gas equivalent, determined based upon the current unit price of crude
oil and natural gas, of (i) non-capital expenditures incurred for production during the current period and (ii) scheduled
depreciation of the capital expenditures for the current period, as calculated under the PSC, and which is allocatedonly to the contractors; because the oil and gas equivalent is determined based upon the current unit price, as theunit price of crude oil and natural gas increases, the volume of oil and gas comprising the “cost recovery portion”
decreases while that of the “equity portion” (explained below) increases; and if the actual production for the year is
not enough to cover the entire quantity of the oil and gas equivalent so calculated, the “cost recovery portion” will
be reduced to the extent it is covered by the actual production, and the quantity not so covered is carried forward to
the succeeding year in accordance with the relevant PSC; and(3) “equity portion,” which represents the residual and is allocated between the host country’s government and thecontractors pursuant to prescribed percentages.
For purposes of our statements of income, we record:• as net sales, our share of total sales relating to crude oil and natural gas production that are allocated to contractors, and• as cost of sales, a portion of “Recoverable accounts under production sharing” that is recovered through the allocation of our share of the “cost recovery portion.”

Recoverable Costs under PSCs
Exploration Costs
Our share of all recoverable exploration costs incurred under the terms of the relevant PSC is capitalized under­“Recoverable accounts under production sharing.”
Development Costs
We record our share of all recoverable expenditures under the terms of the relevant PSC under “Recoverable accounts
under production sharing.”
Production Costs
During the production phase, operating costs incurred for production are initially included under “Recoverable accounts
under production sharing” if such costs are recoverable under the relevant PSC.
Administrative Expenses
Administrative expenses are recorded under “Recoverable accounts under production sharing” if such expenses arerecoverable under the relevant PSC. As explained above under “Cost Recovery and Production Sharing,” such expenses
are recovered as capital or non-capital expenditures.

INPEX Corporation

45

Non-recoverable Costs under PSCs
Acquisition Costs
For projects under PSCs that are entirely in the exploration phase, we expense costs relating to the acquisition of rights,
or “Exploration and development rights,” as amortization of exploration and development rights of other expenses
when they are incurred. When we acquire rights to projects which are already in the development or production phase,
we record the acquisition expenditures or costs under “Exploration and development rights” in our consolidated balance
sheets, which are amortized under the unit-of-production method and accounted for depreciation and amortization.
Generally, cost recovery provisions under PSCs do not cover such expenditures or costs.
Interest on Loans
We expense interest on loans we obtain for PSC projects.

Concession Agreements
Acquisition Costs
We account for acquisition costs related to projects under concession agreements, or “Mining rights” in the samemanner as those related to projects under PSCs, as described above.
Exploration Costs
Our share of costs incurred for exploration is expensed as incurred.
Development Costs
Our share of costs related to mining facilities is capitalized under “Tangible fixed assets” in the balance sheets. We
depreciate overseas tangible fixed assets primarily under the unit-of-production method and domestic tangible
fixed assets primarily under the straight-line method during our production. Such depreciation expenses constitutecost of sales.
Production Costs
During the production phase, our share of operating costs is included in cost of sales.
Administrative Expenses
Our share of administrative expenses is expensed as incurred.

Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with Japanese GAAP. The preparation of these financial
statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting
period. Actual results may differ from these estimates, judgments and assumptions.
An accounting estimate in our consolidated financial statements is a critical accounting estimate if it requires us tomake assumptions about matters that are highly uncertain at the time the accounting estimate is made, and if thepresentation of our financial condition or results of operations are materially affected either by different estimates that
we reasonably could have used in the current period, or by changes in the accounting estimates that are reasonably
likely to occur from period to period. We have identified the following critical accounting estimates with respect to ourfinancial presentation:

46

INPEX Corporation

Allowance for Recoverable Accounts under Production Sharing
We capitalize expenditures made during the exploration, development and production phases under PSCs as “Recoverable
accounts under production sharing,” if they are recoverable under the relevant PSC. A reserve in equal amounts to
exploration costs is provided for as “Allowance for recoverable accounts under production sharing,” which is a reserve
account for potential losses from unsuccessful exploration. Generally, this allowance continues to remain unchanged inour balance sheet until the allowance balance exceeds the remaining balance of exploration cost previously capitalized
during the exploration phase under “Recoverable accounts under production sharing.” In light of the uncertainty, areserve is provided for probable losses on development activities individually estimated for each project as “Allowance
for recoverable accounts under production sharing.” While we believe that the assessment and estimates are reasonable, future changes in the actual situation of projects may affect future results of operations.

Unit-of-Production Method
Overseas mining facilities, mining rights and exploration and development rights when such rights are acquired during
the production phase are mainly amortized by the unit-of-production method. The unit-of-production method requires
a significant estimate as to the reserve quantities. While we believe that our reserve estimates are appropriate, changes
in the estimates of the reserves may significantly affect future results of operations.

Liabilities for Site Restoration and Decommissioning Costs
We recognize liabilities for the expected amount of future decommissioning costs based on the future decommissioning plan. While we believe that the assessment and estimates are reasonable, future changes in the decommissioning
plan may affect future results of operations.

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

Allowance for Investments in Exploration Companies
We have made investments in companies that are engaged in oil and gas activities, and have provided an allowance forprobable losses on such investments at an estimated amount based on the net assets of the investees. While we believethat the assessments and estimates are reasonable, future changes in the actual production volume, prices and foreignexchange rates may affect future results of operations.

Deferred Tax Assets
We record deferred tax assets for temporary differences (including net operating loss carry-forwards) arising mainly
from the write-down of investments in related parties and foreign tax payable. Valuation allowances are provided when
we believe that it is more likely than not that assets will not be realized. Also, we take into account the effect of foreign
tax credits in the calculation of valuation allowances. Realization of deferred tax assets is principally dependent on our
generating sufficient taxable income based on available evidence. If future taxable income is lower than expected due
to market conditions, foreign exchange rates or poor operating results, adjustments may be required.

INPEX Corporation

47

Retirement Benefits to Employees
Our group recognizes the accrued retirement benefits to employees at the present value of the future obligations at theend of this period and related periodic benefit costs which have occurred during this period. To determine the accrued
retirement benefits and periodic benefit costs, our Group uses assumptions, including discount rate, resignation rate,
rate of compensation increase, and the expected return on plan assets.
Differences between actual results and those assumptions or differences arising from changes in the assumptions
may generate actuarial gains and losses, and the future results of operations may be affected. Any actuarial gains andlosses are charged or credited to income during the period when they are generated.
Since certain subsidiaries are classified as small enterprises under the “Accounting Standard for Retirement Benefits,”(ASBJ Statement No. 14) issued by the Accounting Standards Board of Japan (ASBJ), because an individual retirement
benefit plan covers less than 300 people, we employ a simplified method (at the amount which would be required tobe paid if all active employees voluntarily terminated their employment as of the balance sheet date) for the calculationof the retirement benefit obligations of the subsidiaries.

Historical Results of Operations
The following table shows consolidated income statement data derived from audited consolidated financial statements:(Millions of yen, except percentages)

Years ended March 31,

100.0%
32.5
67.5
2.8
4.0
1.3
59.4

¥969,713
343,795
625,918
17,68936,285
12,867559,077

100.0%
35.5
64.5
1.8
3.7
1.3
57.7

12,84333,534
—

1.3
3.4
—

10,984
—
4,005

0.9
—
0.3

production agreement ...............................................
Foreign exchange gain . ...............................................
Other ..........................................................................

—
5,738
7,965
60,080

—
0.6
0.8
6.1

3,482
2,747
11,87233,090

0.3
0.2
1.0
2.7

12,3891.3

10,888

0.9

6,176
2,973
—
11,35632,894586,263
413,239
7,932¥165,092

0.6
0.3
—
1.2
3.4
60.4
42.6
0.8
17.0%

under production sharing ..........................................
Provision for exploration projects .................................
Loss on valuation of investment securities ....................
Other ..........................................................................
Income before income taxes and minority interests . ........
Income taxes . .................................................................
Minority interests ............................................................
Net income .....................................................................

INPEX Corporation¥1,202,965
390,554
812,411
34,09548,34615,759714,211Net sales .........................................................................
Cost of sales ...................................................................
Gross profit .................................................................
Exploration expenses . .....................................................
Selling, general and administrative expenses . ..................
Depreciation and amortization ........................................
Operating income . ......................................................
Other income:Interest income . ..........................................................
Gain on transfer of mining rights .................................
Net gain on redetermination of unitized field ...............
Net gain on taking effect of exploration andOther expenses:
Interest expense ..........................................................
Provision for allowance for recoverable accounts

48

2008

2007

20,587
3,104
21,3505,572
61,501
685,800
491,349
21,205¥  173,246

1.7
0.3
1.8
0.4
5.1
57.0
40.8
1.8
14.4%

Net Sales
Net sales increased ¥233.3 billion, or 24.1%, to ¥1,203.0 billion for the year ended March 31, 2008 from ¥969.7­billion for the year ended March 31, 2007. The increase in consolidated net sales of crude oil and natural gas was
mainly due to the net effect of the following factors: prices of oil and natural gas rose and sales volume increased,
while appreciation of the average exchange rate of the yen for the year caused sales to decline. Of this figure, net salesof crude oil increased ¥176.1 billion, or 29.0%, to ¥783.5 billion for the year ended March 31, 2008 from ¥607.4
billion for the year ended March 31, 2007, net sales of natural gas increased ¥58.2 billion, or 17.5%, to ¥391.1 billion
for the year ended March 31, 2008 from ¥332.9 billion for the year ended March 31, 2007, and net sales of others
decreased ¥1.0 billion, or 3.3%, to ¥28.4 billion for the year ended March 31, 2008 from ¥29.4 billion for the year
ended March 31, 2007.
Sales volume of crude oil increased 2,440 thousand barrels, or 2.9%, to 85,716 thousand barrels for the year ended
March 31, 2008 from the previous year, mainly due to an increase in production volume of crude oil at ACG Oil Fields.
Sales volume of natural gas increased 36 Bcf, or 9.8%, to 402 Bcf for the year ended March 31, 2008 from the previous year. The average overseas sales price of crude oil for the year ended March 31, 2008 was US$80.07 per bbl, a
US$17.91 per bbl or 28.8% increase over the previous year. The average exchange rate for the Group’s sales was¥113.71 per U.S. dollar, a ¥3.19 per U.S. dollar or 2.7% yen appreciation against the U.S. dollar. The increase of¥233.3 billion in net sales was derived mainly from the following factors: an increase in sales volume contributed ¥48.6
billion and an increase in unit sales price contributed ¥216.6 billion, whereas the appreciation of Japanese yen against
U.S. dollar contributed to the sales decrease of ¥31.0 billion and net sales excluding crude oil and natural gas decreasedby ¥0.9 billion.
Cost of Sales
Cost of sales increased ¥46.8 billion, or 13.6%, to ¥390.6 billion for the year ended March 31, 2008 from ¥343.8 billion
for the year ended March 31, 2007. This was mainly due to increase in royalty at ADMA Block owing to increase in sales
and also due to increase in expenses for development wells at South Natuna Sea Block B and Offshore Mahakam Block.
Exploration Expenses
Exploration expenses increased ¥16.4 billion, or 92.7%, to ¥34.1 billion for the year ended March 31, 2008 from ¥17.7
billion for the year ended March 31, 2007 mainly due to exploration activities in North America in addition to increasein exploration activities in Asia & Oceania.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased ¥12.0 billion, or 33.2%, to ¥48.3 billion for the year ended
March 31, 2008 from ¥36.3 billion for the year ended March 31, 2007 mainly due to increase in transportation costs.
Depreciation and Amortization
Depreciation and amortization increased ¥2.9 billion, or 22.5%, to ¥15.8 billion for the year ended March 31, 2008
from ¥12.9 billion for the year ended March 31, 2007. This was mainly due to increase in amortization of explorationand development rights which belong to INPEX Southwest Caspian Sea, Ltd. owing to increase in production volume
and also due to increase in depreciation of domestic pipelines.
Under our accounting for PSCs, capitalized costs included in “Recoverable accounts under production sharing” arereflected in cost of goods sold at the time of recovery, and thus the Company does not have a substantial amount of
fixed asset depreciation or amortization.
Other Income
Other income decreased ¥27.0 billion, or 44.9%, to ¥33.1 billion for the year ended March 31, 2008 from ¥60.1 billion
for the year ended March 31, 2007. This was mainly due to absence of gain on transfer of mining rights of ¥33.5­billion which recorded in the previous year, whereas net gain on redetermination of unitized field of ¥4.0 billion at
Bayu-Undan Gas-Condensate Field and net gain on taking effect of exploration and production agreement of ¥3.5
billion in Venezuela for the year ended March 2008.
INPEX Corporation

49

Other Expenses
Other expenses increased ¥28.6 billion, or 87.0%, to ¥61.5 billion for the year ended March 31, 2008 from ¥32.9
billion for the year ended March 31, 2007. This was mainly due to loss on valuation of investment securities of ¥21.3
billion and increase in provision for allowance for recoverable accounts under production sharing of ¥14.4 billion owing
to increase in exploration activities at Masela Block.
Income Taxes
Income taxes increased ¥78.1 billion, or 18.9%, to ¥491.3 billion for the year ended March 31, 2008 from ¥413.2
billion for the year ended March 31, 2007 due to increase in overseas corporate taxes as a result of increase in income
before income taxes owing to higher prices of oil and natural gas. The effective income tax rate for the year ended
March 31, 2008 was 72% compared to 70% for the year ended March 31, 2007.
As explained in “Factors Affecting Our Results of Operations—Corporate Taxes Imposed on Us Outside Japan,” thefact that most of the Company’s corporate taxes are paid overseas, where certain regions impose high corporate taxes,
and expenses incurred in Japan are not deductible for such taxes results in a high effective income tax rate.
Minority Interests
Minority interests increased ¥13.3 billion, or 167.3%, to ¥21.2 billion for the year ended March 31, 2008 from ¥7.9
billion for the year ended March 31, 2007.
Net Income
As a result of the foregoing factors, net income increased ¥8.1 billion, or 4.9%, to ¥173.2 billion for the year ended
March 31, 2008 from ¥165.1 billion for the year ended March 31, 2007.

Investment and Funding
Our Investments for Crude Oil and Natural Gas Projects
In order to maintain stable earnings, we need to continuously explore for new reserves of crude oil and natural gas.
The following information, which includes the breakdown of our investments among exploration expenditures,development expenditures and operating expenses, has been prepared based on available data in the reports provided
by operators. The definition of each item is as follows:•	Exploration expenditures include exploration drilling, and geological and geophysical studies. If the project (contractarea) is entirely in the exploration phase, administrative costs, such as personnel costs and office operations costs inthe country where the relevant project is conducted are included in this category.
•	Development expenditures include development drilling and production facilities.
•	Operating expenses include well operations, maintenance, and supervision of production activities. Administrative
expenses in the project (contract area) where there is a producing field and/or a development field are included inthis category.
		

Our definition of exploration and development expenditures and the basis of preparation of the following tableare different from those required under the Statement of Financial Accounting Standard No. 69, “Disclosures about
Oil and Gas Producing Activities,” or SFAS 69. Such differences include, but are not limited to, the following:•	Our expenditures reflected in the table are on a cash-call basis as to joint ventures for PSCs where we are not an
operator, while SFAS 69 requires that expenditures be recorded on an accrual basis.

50

INPEX Corporation•	We prepared the table based on definitions in the reports from operators. These definitions may not be consistent
with that of SFAS 69.
•	SFAS 69 requires that administrative costs not directly related to exploration and development activities be excluded
from exploration and development expenditures. However, administrative costs are not necessarily excluded fromthose expenditures.
The table below shows our expenditures for the years ended March 31, 2007 and 2008:(Millions of yen, except percentages)

Years ended March 31,

Exploration ........................................................................
Development .....................................................................
Subtotal . ...........................................................................
Operating expenses ...........................................................
Total ..................................................................................

2008

2007

¥ 30,544
185,957
216,501
74,952¥291,453

10.5%
63.8
74.3
25.7
100.0%¥ 64,746
232,958
297,704
88,270¥385,974

16.8%
60.3
77.1
22.9
100.0%The table below shows our exploration and development expenditures for the years ended March 31, 2007 and 2008
by geographical region:(Millions of yen, except percentages)

Years ended March 31,

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

2008

2007

¥ 11,318
112,434
70,67919,2082,862¥216,501

5.2%
51.9
32.7
8.9
1.3
100.0%¥ 12,836
169,924
77,442
24,345
13,157¥297,704

4.3%
57.1
26.0
8.2
4.4
100.0%The table below shows our operating expenses for the years ended March 31, 2007 and 2008 by geographical region:(Millions of yen, except percentages)

Years ended March 31,

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

2008

2007

¥ 8,978
43,12618,01870¥74,952

12.0%
57.5
6.4
24.0
0.1
100.0%¥ 9,294
47,992
6,755
21,9942,235¥88,270

10.5%
54.4
7.7
24.9
2.5
100.0%

Our expenditures increased ¥94.5 billion, or 32.4%, to ¥386.0 billion for the year ended March 31, 2008 from¥291.5 billion for the year ended March 31, 2007. This was primarily due to increases in exploration expenditures at
Masela Block in Asia & Oceania, development expenditures at WA-285-P and Offshore Mahakam Block, and operating expenditures.

INPEX Corporation

51

Our Expenditures for Acquisitions of Crude Oil and Natural Gas Projects
The table below shows our expenditures for acquisitions of oil and gas properties for the years ended March 31, 2007
and 2008 by geographical region. Expenditures for acquisitions include the acquisition cost of mining rights, exploration and development rights, and signing bonuses, as well as the acquired tangible fixed assets and recoverable
accounts under production sharing due to acquisitions.
(Millions of yen, except percentages)

Years ended March 31,

Asia & Oceania ..................................................................
Middle East & Africa ..........................................................
Americas . ..........................................................................
Total ..................................................................................

2008

2007

¥  509635—¥1,144

44.5%
55.5
—
100.0%¥ 1,029
1,058
15,893¥17,980

5.7%
5.9
88.4
100.0%

Our expenditures for acquisitions increased ¥16.9 billion to ¥18.0 billion for the year ended March 31, 2008 from ¥1.1
billion for the year ended March 31, 2007.

Analysis of Recoverable Accounts under Production Sharing
With respect to projects under PSCs, our share of costs arising during the exploration, development and production
phases are capitalized under “Recoverable accounts under production sharing.” The following table shows changes inthe balance of “Recoverable accounts under production sharing” during the years ended March 31, 2007 and 2008:(Millions of yen)

Years ended March 31,

Balance at beginning of period . ...............................................................................
Add: Exploration costs .............................................................................................
Development costs ..........................................................................................
Operating expenses . .......................................................................................
Other ..............................................................................................................
Less: Cost recovery—capital expenditures ................................................................
Cost recovery—non-capital expenditures .........................................................
Other ..............................................................................................................
Balance at end of period ..........................................................................................
Allowance for recoverable accounts under production sharing at end of period ........

2007

2008

¥295,076
9,792
160,114
46,683
17
105,950
86,320262
319,150¥ (51,191)¥319,150
27,460183,00252,698—92,147106,048952
383,163¥ (71,445)“Cost recovery—non-capital expenditures” are generally higher than “operating expenses” because some of the­exploration costs and development costs that are recoverable in the fiscal year when such costs are incurred areincluded in addition to operating expenses.
Compared with the year ended March 31, 2007, exploration costs for the year ended March 31, 2008 significantly
increased primarily due to exploration activities at Masela Block.
Compared with the year ended March 31, 2007, development costs for the year ended March 31, 2008 increased
primarily due to development expenditures at Offshore Mahakam Block.
Compared with the year ended March 31, 2007, operating expenses for the year ended March 31, 2008 increased
primarily due to operation expenses at South Natuna Sea Block B.
Cost recovery during the year ended March 31, 2008 primarily consisted of cost recovery at Offshore Mahakam
Block, ACG Oil Fields and South Natuna Sea Block B.
A substantial portion of the amount under “Less: Other” for the years ended March 31, 2007 and 2008 related toreductions in the balance of recoverable accounts under production sharing with respect to fields being closed.

52

INPEX Corporation

Liquidity and Our Funding Sources
Our policy is to maintain sufficient cash on hand at any given time to fund expenditures for existing and new crude oiland natural gas projects in a timely manner and to provide for any steep decline of oil and gas prices. For this purpose,
our cash management policy is to invest excess cash in low-risk and liquid financial instruments. It is our strategy to
improve capital efficiency in the long term by business expansion while maintaining a sound financial position with
sufficient cash on hand.
Our primary sources of funding are cash on hand and many other sources. We fund oil and gas exploration ­projects
with cash on hand and equity financing; and oil and gas development projects, construction or expansion of domestic
pipelines and other supply infrastructure with cash on hand and/or long-term loans. The Japan Bank for International
Cooperation (JBIC) and Japanese commercial banks have been providing long-term loans for oil and gas development
activities. Certain aggregate outstanding principal amounts of our long-term debt have been guaranteed by Japan Oil,Gas and Metals National Corporation (JOGMEC). The Development Bank of Japan and Japanese commercial banks
have been providing long-term loans for construction or expansion of domestic pipelines.
We are considering diversifying financing sources in the future using non-recourse project financing, arrangement,
issuance of bonds and equity financing.

Maturities of Long-term Debt
The following table summarizes the maturities of our outstanding long-term debt as of March 31, 2008:(U.S. dollars and Millions of yen)
Long-term debt denominated inYears ending March 31,

2009 ...................................................................................................
2010 ...................................................................................................
2011 ...................................................................................................
2012 ...................................................................................................
2013 ...................................................................................................
2014 and thereafter . ...........................................................................
Total ....................................................................................................

U.S. dollars

Yen

Total yenequivalent$  138.3
138.3
138.3
129.1
27.2
868.1
$1,439.2¥ 5,097
4,891
4,770
4,283
3,055
27,457¥49,553¥ 18,950
18,744
18,623
17,221
5,775
114,450¥193,763

Historical Cash FlowsThe following table summarizes our historical cash flows for the years ended March 31, 2007 and 2008:(Millions of yen)

Years ended March 31,

Net cash provided by operating activities ..................................................................
Net cash used in investing activities ..........................................................................
Net cash (used in) provided by financing activities . ...................................................
Cash and cash equivalents at end of period . ............................................................

2007

2008

¥231,982(209,243)
13,794
189,417¥363,995(261,767)(45,228)
222,270

Cash Provided by Operating Activities
Cash provided by operating activities increased ¥132.0 billion to ¥364.0 billion for the year ended March 31, 2008
from ¥232.0 billion for the year ended March 31, 2007. This was due to increase in income before income taxes andminority interests mainly owing to higher prices of oil and natural gas and increase in oil and gas sales volume.

INPEX Corporation

53

Cash Used in Investing Activities
Cash used in investing activities increased ¥52.6 billion to ¥261.8 billion for the year ended March, 2008 from ¥209.2
billion for the year ended March 31, 2007. This was mainly due to increase in investment in recoverable accounts under
production sharing (capital expenditures) and purchase of tangible fixed assets.
Cash (Used in) Provided by Financing Activities
Cash used in financing activities increased ¥59.0 billion to ¥45.2 billion (compared to cash provided by financing
activities of ¥13.8 billion for the year ended March 31, 2007). This was primarily due to increase in repayments oflong-term debt for the year ended March 31, 2008 while proceeds from sales of treasury stock were recorded in the­previous year.

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

Crude Oil and Natural Gas Prices
While we negotiate sales prices for crude oil and condensate with customers, those prices generally take into
account official prices, which are determined by governmental authorities in their respective oil producing regions,which fluctuate generally in line with the fluctuation in international crude oil prices. Sales contracts for crude oil are
generally one-year contracts but also include spot contracts. In both cases, sales prices are those at the time of saleand thus fluctuate.
For our natural gas, which is currently mostly produced in Indonesia, the selling price is determined based on theIndonesian Crude Price, or ICP, pursuant to each sales contract. Sales contracts for natural gas are long-term contracts,
typically lasting over 10 years. Typically, natural gas sales prices move in conjunction with crude oil prices; however,
movements in sales prices of natural gas are not directly proportional to those of crude oil prices.
Most of our sales contracts with domestic customers of natural gas sales are made and entered into by fixed sales
prices for the fiscal year taking into consideration the price of competing energy such as LNG.
As mentioned above, we are exposed to fluctuations in prices of crude oil and overseas natural gas, which are
determined by reference to international market prices. International oil and gas prices are volatile and are influenced
by global as well as regional supply and demand conditions. This volatility has a significant effect on our net sales andnet income.

Our Crude Oil and Natural Gas Sales Volumes
Our crude oil and natural gas sales volumes depend primarily on the production level. As described above in “Our
Method of Accounting for Types of Arrangements,” our sales volumes under production sharing contracts depend on
not only production levels, but also on the price of crude oil and natural gas, cost recovery and equity portion.

54

INPEX Corporation

Level of Exploration Activities
Due to our policy of expensing exploration costs or, in the case of production sharing contracts, providing a full allowance
for recoverable costs incurred in the exploration phase, an increase in our level of participation in exploration phaseprojects has a more immediate negative impact on our results of operations than would be the case if such costs were
accounted for using the successful efforts or full cost method of accounting under U.S. GAAP.

Fluctuation in Exchange Rates between the U.S. Dollar and Japanese Yen
Because our sales of crude oil and natural gas, most of our expenses and a substantial portion of our debt are denominated in U.S. dollars, our net income, which is denominated in Japanese yen, is affected by fluctuations in the exchange
rate between these currencies. Depreciation of the Japanese yen against the U.S. dollar positively impacts our sales andrelated earnings, while an appreciation of the Japanese yen against the U.S. dollar has the opposite effect. However, asa substantial portion of our long-term debt is denominated in U.S. dollars, revaluation of such long-term debt at theend of each period results in a foreign exchange loss if the Japanese yen depreciates against the U.S. dollar, while anappreciation of the Japanese yen against the U.S. dollar has the opposite effect. As a result, these positive and negative
effects cancel out each other to the certain extend.

Fluctuation in Interest Rates
We fund certain development projects with long-term loans. A substantial portion of our long-term debt has floatinginterest rates that are determined by reference to the six-month London Interbank Offered Rate in U.S. dollars.
Accordingly, we are exposed to fluctuations in interest rates in U.S. dollars.

Corporate Taxes Imposed on Us Outside Japan
We conduct mostly operations outside Japan, and most of corporate taxes are paid overseas. With respect to the overseas taxes, expenses incurred in Japan are not deductible in general. Such domestic expenses include those relating toadministrative expenses at our headquarters, foreign exchange losses and the provision of various types of allowances.
When such domestic expenses increase, pre-tax income recorded in our consolidated statement of income decreases,
but the corporate taxes we pay overseas do not decrease, thereby increasing our effective tax rate.
Indonesia imposes corporate taxes on oil and gas operations on a PSC basis and does not permit the aggregating ofexpenses from different PSCs for tax purposes. Thus, even if our exploration activities in Indonesia expand and related
expenses increase with respect to one PSC, we cannot deduct such expenses from taxable income attributable toanother PSC in that country.

Consolidated Financial Forecasts for the Year Ending March 31, 2009
For the year ending March 31, 2009, consolidated net sales are expected to be ¥1,314.0 billion, an increase of ¥111.0
billion, or 9.2%, operating income is expected to be ¥850.0 billion, an increase of ¥135.8 billion, or 19.0%, ordinary
income is expected to be ¥819.0 billion, an increase of ¥133.2 billion, or 19.4%, and net income is expected to be¥177.0 billion, an increase of ¥3.8 billion, or 2.2%, compared with those for the year ended March 31, 2008. Thesechanges are mainly due to an increase in oil prices.
Average oil price of Brent crude was US$123.0 per bbl and average exchange rate of the Japanese yen against the
U.S. dollar was ¥104.6 for the three months ended June 30, 2008. In these estimates, which we announced on August
8, 2008, the oil price of Brent crude was assumed to be US$115.0 per bbl for the three months ending September 30,
2008 and US$95.0 per bbl for the six months ending March 31, 2009 with the exchange rate of the Japanese yen
against the U.S. dollar at ¥105.0 for the three months ending September 30, 2008 and ¥100.0 for the six months
ending March 31, 2009 in the light of the results for the three months ended June 30, 2008.

INPEX Corporation

55

Consolidated Balance Sheets
INPEX Holdings Inc. and Consolidated Subsidiaries
As of March 31, 2007 and 2008ASSETS
Current assets:
Cash and cash equivalents ..................................................
Accounts receivable—trade .................................................
Marketable securities (Note 4) .............................................
Inventories ..........................................................................
Deferred tax assets (Note 6) ................................................
Accounts receivable—other . ...............................................
Other ..................................................................................
Less allowance for doubtful accounts ..................................

Tangible fixed assets:
Buildings and structures ......................................................
Wells . .................................................................................
Machinery, equipment and vehicles .....................................
Land ...................................................................................
Construction in progress .....................................................
Other ..................................................................................
Less accumulated depreciation and amortization .................

Intangible assets:
Goodwill (Note 12) . ............................................................
Exploration and development rights ....................................
Mining rights ......................................................................
Other ..................................................................................

Investments and other assets:
Recoverable accounts under production sharing ..................
Less allowance for recoverable accounts   under production sharing ..................................................
Investment securities (Notes 4 and 5) ..................................
Long-term loans receivable . ................................................
Deferred tax assets (Note 6) ................................................
Other investments ...............................................................
Less allowance for doubtful accounts ..................................
Less allowance for investments in exploration . ....................
Total assets .............................................................................
Refer to accompanying notes to consolidated financial statements.

56

INPEX Corporation

Millions of yen

Thousands of
U.S. dollars(Note 3)

2007

2008

2008

¥  189,417
81,95546,61813,255
17,242
81,68943,960(12)
474,124¥  222,270
120,949
97,465
19,717
11,236
83,436
10,097(59)565,111$ 2,218,263
1,207,076
972,705
196,776
112,136
832,695
100,768(589)
5,639,830

185,484
173,245
252,832
28,31024,7308,787
673,388(454,161)
219,227

201,864
180,609240,041
28,38728,721
21,981
701,603(447,122)
254,4812,014,611
1,802,485
2,395,619
283,303
286,637
219,371
7,002,026(4,462,295)
2,539,731

132,106
127,1104,365
2,241265,822

121,644
120,177
18,844
4,816
265,481

1,214,012
1,199,371
188,064
48,0642,649,511

319,150

383,163

3,823,982(51,191)
267,959
354,851
3,389—
34,879(1,870)(10,274)
648,934¥1,608,107(71,445)
311,718
360,727
9,361
20,61831,279(912)(9,963)722,828¥1,807,901(713,024)
3,110,958
3,600,070
93,423
205,768
312,166(9,102)(99,431)7,213,852$18,042,924

LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable-trade . .....................................................
Short-term borrowings and current portion of   long-term debt (Note 5) ....................................................
Income taxes payable (Note 6) . ...........................................
Accounts payable—other ....................................................
Provision for exploration projects .........................................
Accrued bonuses to officers ................................................
Other ..................................................................................

Long-term liabilities:
Long-term debt (Note 5) .....................................................
Deferred tax liabilities (Note 6) ............................................
Accrued retirement benefits to employees ...........................
Accrued retirement benefits to officers ................................
Liabilities for site restoration and decommissioning costs .....
Liabilities for losses on development activities ......................
Accrued special repair and maintenance . ............................
Other ..................................................................................
Total liabilities .........................................................................

Millions of yen

Thousands of
U.S. dollars(Note 3)

2007

2008

2008

¥    21,794¥    22,582$   225,369

50,64985,14388,7686,900
19412,800266,248

19,275131,524
111,506
10,786
209
29,404
325,286

192,365
1,312,615
1,112,834
107,645
2,086
293,453
3,246,367

198,320
38,995
8,371
1,712
11,930
1,965
179
371
261,843
528,091

174,81344,296
8,645
475
12,728
1,965
230
650
243,802569,088

1,744,641
442,076
86,277
4,741
127,026
19,611
2,295
6,487
2,433,154
5,679,521

30,00030,000299,401

Net assets (Note 7):
Common stock: ..................................................................
   Authorized: 2
 007—9,000,001.00 shares
2008—9,000,001.00 shares   Issued and outstanding: 2
 007—2,358,410.13 shares
2008—2,358,410.13 shares
Capital surplus ....................................................................
Retained earnings ...............................................................
Less: Treasury stock: 2
 007—1,089.63 shares
2008—2,047.10 shares .......................
Total shareholders’ equity .......................................................

418,491
570,120

418,494
718,616

4,176,587
7,171,816(1,108)1,017,503(2,215)
1,164,895(22,106)
11,625,698

Unrealized holding gain (loss) on securities ..........................
Unrealized gain from hedging instruments ..........................
Translation adjustments ..........................................................
Total valuation, translation adjustments and others .................
Minority interests ....................................................................
Total net assets .......................................................................

9,349
18
2,025
11,392
51,121
1,080,016(7,468)4(60)(7,524)81,442
1,238,813(74,531)40(599)(75,090)812,795
12,363,403¥1,608,107¥1,807,901$18,042,924

Contingent liabilities (Note 14)
Total liabilities and net assets ..................................................

INPEX Corporation

57

Consolidated Statements of Income
INPEX Holdings Inc. and Consolidated Subsidiaries
For the years ended March 31, 2007 and 2008

Millions of yen

Net sales ...................................................................................
Cost of sales .............................................................................
   Gross profit .......................................................................
Exploration expenses ................................................................
Exploration subsidies . ...............................................................
Selling, general and administrative expenses(Notes 10, 11 and 12) .............................................................
Depreciation and amortization ..................................................
   Operating income . ............................................................
Other income:Interest income .....................................................................
Dividend income ...................................................................
Equity in earnings of affiliates . ..............................................
Gain on transfer of mining rights ..........................................
Net gain on re-determination of unitized field .......................
Net gain on taking effect of exploration and   production agreement . .......................................................
Foreign exchange gain ..........................................................
Other ....................................................................................
Other expenses:
Interest expense ....................................................................
Provision for allowance for recoverable accounts   under production sharing ....................................................
Provision for exploration projects ...........................................
Loss on valuation of investment securities .............................
Other ....................................................................................
   Income before income taxes and minority interests ............
Income taxes (Note 6):
Current .................................................................................
Deferred ...............................................................................
Minority interests ......................................................................
Net income (Note 8) .................................................................
Refer to accompanying notes to consolidated financial statements.

58

INPEX Corporation

Thousands of
U.S. dollars(Note 3)

2007

2008

2008

¥969,713
343,795
625,918
17,781(92)¥1,202,965
390,554
812,41134,458(363)$12,005,639
3,897,745
8,107,894
343,893(3,623)36,285
12,867559,077

48,34615,759714,211482,495
157,275
7,127,854

12,8432,292
1,350
33,534—

10,984
5,440
1,765
—
4,005

109,62154,292
17,615—39,970

—
5,738
4,323
60,080

3,482
2,747
4,667
33,09034,75027,41546,577330,240

12,38910,888

108,663

6,176
2,973
—
11,35632,894586,263

20,587
3,104
21,3505,572
61,501
685,800

205,459
30,978213,074
55,609613,7836,844,311

432,894(19,655)
413,239
7,932¥165,092

496,852(5,503)491,349
21,205¥  173,246

4,958,602(54,920)
4,903,682
211,627$ 1,729,002

Consolidated Statements of Changes in Net Assets
INPEX Holdings Inc. and Consolidated Subsidiaries

For the year ended March 31, 2007

Millions of yen

Balance
as ofMarch 31,
2006

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

Increase(decrease)
due to joint
stocktransfer

Purchaseoftreasurystock

Disposaltreasurystock

Net changes
in items
other thanthose inshareholders’equityTotalchangesduringthe period

Balance
as ofMarch 31,2007¥       ————

¥    30,000
418,491
570,120(1,108)¥    30,000
418,491
570,120(1,108)Cashdividends
paid

Bonusestoofficers

Net
income¥————¥ 30,000 ¥     —415,892—
415,734(10,559)(19,641)
—

¥   —
—
(147)
—

¥      —
—165,092—¥     — ¥     —
—
2,599
—
—
(1,725) 20,258—

841,985(10,559)(147)

165,092(1,725)22,857—

1,017,503

1,017,503—(5,723)

—

—

—

—

—

15,072

9,349

9,349

—
—

—
1,117

—
—

—
—

—
—

—
—

—
—

18
908

18
2,025

18
2,025

(4,606)—39,921—¥877,300 ¥(10,559)——¥(147)——¥165,092————¥(1,725) ¥22,857

15,998
11,200¥27,198

11,392
51,121¥1,080,016

11,392
51,121¥1,080,016——¥—

For the year ended March 31, 2008
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 ..........................................

Net
incomePurchaseoftreasurystock

Disposaltreasurystock

Net changes
in items
other thanthose inshareholders’equity¥       —
—(24,750)—(24,750)¥       —
—173,246—
173,246¥        ——
—(1,160)(1,160)

¥   —
3
—
53
56

¥       —————

¥      —
3148,496(1,107)
147,392¥    30,000
418,494
718,616(2,215)
1,164,895

9,349

—

—

—

—

(16,817)(16,817)(7,468)

18
2,025

—
—

—
—

—
—

—
—

(14)
(2,085)(14)(2,085)

4(60)

11,392
51,121¥1,080,016——¥(24,750)——¥173,246——¥(1,160)——¥56(18,916)
30,321¥11,405(18,916)
30,321¥158,797(7,524)81,442¥1,238,813

Disposaltreasurystock

Net changes
in items
other thanthose inshareholders’equityBalance
as ofMarch 31,
2007

Cash
dividends
paid¥    30,000
418,491
570,120(1,108)1,017,503

Totalchangesduring theperiodBalance
as ofMarch 31,
2008

Thousands of U.S. dollars (Note 3)

Balance
as ofMarch 31,
2007

Cash
dividends
paidNet
incomeCommon stock .......................................... $   299,401 $       — $       —Capital surplus ...........................................
4,176,557——
Retained earnings ......................................
5,689,820(247,006) 1,729,002
Treasury stock ............................................
(11,058)——
Total shareholders’ equity .......................... 10,154,720(247,006) 1,729,002
Unrealized holding gain (loss)
on securities . ...........................................
93,303——
Unrealized gain (loss) fromhedging instruments ................................
180——
Translation adjustments .............................
20,210——Total valuation, translation adjustments
and others ...............................................
113,693——
Minority interests .......................................
510,190——
Total net assets .......................................... $10,778,603 $(247,006) $1,729,002

Purchaseoftreasurystock$      ———
(11,577)(11,577)$  — $      —
30
—
—
—
529
—
559
—

Total
changesduring theperiodBalance
as ofMarch 31,2008$       — $   299,401
30
4,176,587
1,481,996
7,171,816(11,048)(22,106)
1,470,97811,625,698——(167,834)(167,834)(74,531)

—
—

—
—

(140)
(20,809)(140)(20,809)

40
(599)

—
—
$(11,577)— (188,783)(188,783)(75,090)—
302,605
302,605
812,795$559 $ 113,822 $1,584,800 $12,363,403

Refer to accompanying notes to consolidated financial statements.

INPEX Corporation

59

Consolidated Statements of Cash Flows
INPEX Holdings Inc. and Consolidated Subsidiaries
For the years ended March 31, 2007 and 2008

Cash flows from operating activities:
Income before income taxes and minority interests . .........................................................
Depreciation and amortization .........................................................................................
Amortization of goodwill .................................................................................................
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 of affiliates . .........................................................................................
Gain on transfer of mining rights .....................................................................................
Loss on the sale of investment securities . .........................................................................
Loss on the valuation of investment securities ..................................................................
Accounts receivable—trade ..............................................................................................
Recovery of recoverable accounts under production sharing (capital expenditures) ...........
Recoverable accounts under production sharing (operating expenditures) . .......................
Inventories .......................................................................................................................
Accounts payable—trade .................................................................................................
Accounts receivable—other . ............................................................................................
Accounts payable—other .................................................................................................
Advances received . ..........................................................................................................
Other ...............................................................................................................................
Subtotal .......................................................................................................................
Interest and dividends received .........................................................................................
Interest paid .....................................................................................................................
Income taxes paid ............................................................................................................
Net cash provided by operating activities . ............................................................................
Cash flows from investing activities
Increase in time deposits ..................................................................................................
Decrease in time deposits .................................................................................................
Purchase of marketable securities .....................................................................................
Proceeds from sales of marketable securities ....................................................................
Purchase of tangible fixed assets ......................................................................................
Proceeds from sales of tangible fixed assets ......................................................................
Purchase of intangible assets ............................................................................................
Purchase of investment securities .....................................................................................
Proceeds from sales of investment securities .....................................................................
Investment in recoverable accounts under production sharing (capital expenditures) . .......
Decrease (increase) in short-term loans receivable . ...........................................................
Long-term loans made .....................................................................................................
Collection 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
Decrease in short-term loans ............................................................................................
Proceeds from long-term debt ..........................................................................................
Repayment of long-term debt ..........................................................................................
Proceeds from minority interests for additional shares . .....................................................
Purchase of treasury stock ................................................................................................
Proceeds from sales of treasury stock ...............................................................................
Cash dividends paid .........................................................................................................
Dividends paid to minority shareholders ...........................................................................
Stock transfer payment ....................................................................................................
Restricted cash deposit .....................................................................................................
Net cash (used in) provided by financing activities ................................................................
Effect of exchange rate changes on cash and cash equivalents . ...........................................
Net increase in cash and cash equivalents ............................................................................
Cash and cash equivalents at beginning of the period . ........................................................
Cash and cash equivalents at end of the period ...................................................................
Refer to accompanying notes to consolidated financial statements.

60

INPEX Corporation

Millions of yen

Thousands of
U.S. dollars(Note 3)

2007

2008

2008

¥586,263
30,599
6,978
6,081
3,038
845
1,215
1,377
(15,135)
12,389(1,653)(1,350)(33,534)
2,613—(10,385)
105,950(18,955)(8,086)(879)———(3,810)663,561
20,560(11,993)(440,146)
231,982¥685,800
36,181
6,617
21,207
3,937
276
815
(2,377)(16,424)
10,8881,036(1,765)—15
21,350(39,393)
92,147(26,052)(2,275)481(16,986)
21,80910,352
7,156
814,795
17,515(11,508)(456,807)
363,995$6,844,311
361,088
66,038211,647
39,291
2,754
8,134(23,722)(163,912)
108,663
10,339(17,615)—150
213,074(393,144)
919,631(260,000)(22,705)
4,800(169,521)
217,655
103,31371,417
8,131,686
174,800(114,850)(4,558,952)
3,632,684(17,078)
2,798(5,141)
23,643(37,845)955(1,778)(109,823)
43,609(111,314)(6,524)
(832)
889
—
6,707
2,491
(209,243)(2,765)18,997(39,949)
51,495(59,465)183(2,012)(112,378)
105(131,060)
10,534(7,453)527(15,887)
27,891(530)(261,767)(27,595)
189,591(398,693)
513,922(593,463)
1,826(20,080)(1,121,537)
1,048(1,307,984)
105,130(74,381)
5,260(158,553)
278,353(5,289)(2,612,445)(120)
30,083(38,662)3,606(1,170)22,397(10,791)
(81)
(868)
9,400
13,794
1,741
38,274
151,143¥189,417(50)
40,785(67,745)8,344(1,105)—(24,719)
(737)
(1)
—
(45,228)(24,147)
32,853
189,417¥222,270(499)
407,036(676,098)
83,274(11,028)—(246,697)(7,355)(10)—(451,377)(240,988)
327,874
1,890,389$2,218,263

Notes to Consolidated Financial Statements
INPEX Holdings Inc. and Consolidated Subsidiaries

1

BASIS OF PRESENTATIONINPEX Holdings Inc. (the “Company”) is primarily

consolidated financial statements have been prepared inengaged in the exploration, development and produc-

accordance with accounting principles generallytion of natural gas and crude oil.

accepted in Japan, which may differ in certain material

The Company and its domestic subsidiaries maintainrespects from accounting principles generally accepted

their accounting records and prepare their financial

in the United States of America, and are compiled fromstatements in accordance with accounting principles

the consolidated financial statements prepared by thegenerally accepted in Japan, and its overseas subsidiar-Company as required by the Financial Instruments andies maintain their books of account in conformity with

Exchange Law of Japan.

those of their countries of domicile. The accompanying

2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of consolidation and accounting forinvestments in affiliates

consolidated operating results for the year ended March
31, 2008 included operating results for 15 months from

The accompanying consolidated financial statements

January 1, 2007 to March 31, 2008. The effect of thisinclude the accounts of the Company and companies

change does not have a significant impact on the con-controlled directly or indirectly by the Company.

solidated financial statements.

­Companies over which the Company exercises

The excess of cost over underlying net assets exclud-­significant influence in terms of their operating anding minority interests at fair value as of their dates offinancial policies are included in the consolidated

acquisition is accounted for as goodwill and amortizedfinancial statements on an equity basis. All significant

over 20 years on a straight-line method.

intercompany balances and transactions are eliminated in consolidation.

(b) Cash equivalents

For the 40 companies for which the closing date

All highly liquid investments with a maturity of threediffered from the consolidated closing date, including

months or less when purchased are considered cash

but not limited to, INPEX Sahul, Ltd. and INPEX Masela,equivalents.

Ltd., the financial statements for the year ended
December 31 were used. However, the necessary(c) Foreign currency translation

adjustments have been made to the financial state-

Monetary assets and liabilities denominated in foreign

ments of those companies to reflect any significant

currencies are translated into yen at the exchangetransactions made between the Company’s closing daterates prevailing at the balance sheet date. All revenues

and those of the consolidated subsidiaries.

and expenses associated with foreign currencies are

For the 10 companies, including but not limited to,translated at the rates of exchange prevailing when

Japan Oil Development, Co., Ltd., Teikoku Oil (D.R.

such transactions were made. The resulting exchange

Congo) Co., Ltd., INPEX Southwest Caspian Sea, Ltd.,

gain or loss is credited or charged to income.

and INPEX North Caspian Sea, Ltd., the financial state-

The revenue and expense accounts of the overseas

ments for the year ended on the consolidated closing

subsidiaries are translated into yen at the average rates

date were used, even though their closing date isof exchange during the period. Except for the compo-

December 31.

nents of net assets excluding minority interests, theUntil the year ended March 31, 2007, INPEX Browse,

balance sheet accounts are translated into yen at theLtd. had been consolidated on the basis of fiscal periods

rates of exchange in effect at the balance sheet date.

ended December 31, which differs from that of the

The components of net assets excluding minority inter-

Company. Effective the year ended March 31, 2008, its

ests are translated at their historical exchange rates.

financial statements prepared for consolidation purpose

Differences arising from the translation are presented as

as of the consolidation closing date have been usedtranslation adjustments and minority interests in thedue to increase in its materiality. Accordingly, theaccompanying consolidated financial statements.

INPEX Corporation

61

(d) Securities

provided for probable losses on development invest-

In general, securities are classified into three categories:

ment individually estimated for each project.

trading, held-to-maturity or other securities. Securities
held by the Company and its subsidiaries are all classi-(h) Allowance for investments in exploration

fied as other securities. Other securities with a deter-

The allowance for investments in exploration is pro-minable market value are mainly stated at fair value

vided for future potential losses on investments inwith any changes in unrealized holding gain or loss, net

exploration companies at an estimated amount basedof the applicable income taxes, included directly in net

on the net assets of the investees.

assets. Other securities without a determinable market
value are stated at cost. Cost of securities sold is deter-(i) Provision for exploration projects

mined by the moving average method.

Provision for exploration projects is provided for future
expenditures of consolidated subsidiaries at the(e) Inventories­exploration stage based on a schedule of investments

Products are carried mainly at the lower of cost or

in exploration.

market, cost being determined mainly by the movingaverage method. Other inventories are carried at cost,(j) Accrued bonuses to officers

cost being determined by the moving-average method,

Accrued bonuses to officers are provided at the

except for construction projects in progress which are

expected payment amount for the fiscal year.

carried at cost, cost being determined by the individual
cost basis.

(k) Tangible fixed assets
Depreciation of overseas mining facilities is mainly(f) Allowance for doubtful accounts

computed by the unit-of-production method.

The allowance for doubtful accounts is provided at an

For other tangible fixed assets, the straight-line

amount determined based on the historical experience

method of depreciation is applied. The useful lives ofof bad debt with respect to ordinary receivables, plus

fixed assets are based on the estimated useful lives ofan estimate of uncollectible amounts determined by

the respective assets.

reference to specific doubtful receivables from customers which are experiencing financial difficulties.

As for tangible fixed assets acquired on or after April
1, 2007, the Company and certain subsidiaries havechanged the depreciation method based on an amend-(g) Recoverable accounts under production­sharing and related allowance

ment in corporate tax law.
As for other tangible fixed assets whose book value

Cash investments made by the Company during explo-

reached their residual value, the Company and certain

ration, development and production project under asubsidiaries depreciate the residual value equally over 5

production sharing contract and a service contract

years in accordance with the method prescribed in(buyback arrangement) are recorded as “Recoverable

amendment to corporate tax law.

accounts under production sharing” so long as they
are recoverable under the terms of the relevant con-

These changes do not have a significant impact on
the consolidated financial statements.

tract. When the Company receives natural gas andcrude oil in accordance with the relevant contract, an(l) Intangible assets

amount corresponding to the purchase costs of the

Exploration and development rights at the exploration

products (i.e., a cost recovery portion of the invest-

stage are fully amortized in the year such rights arements) is released from this account.

acquired, and those at the production stage are amor-

Because these investments are recoverable only
where commercial oil or gas is discovered, an allowance
for recoverable accounts under production sharing isprovided for probable losses on investments madeduring the exploration stage under production sharing
contracts arising from the failure to discover commercial
oil and gas. In light of this uncertainty, an allowance forrecoverable accounts under production sharing is
62

INPEX Corporation

tized by the unit-of-production method.
Mining rights are amortized mainly by the unit-ofproduction method.
Capitalized computer software costs are being amortized over a period of five years.
Other intangible assets are amortized by the straightline method.

(m) Accrued retirement benefits to employees(q) Accrued special repair and maintenanceAccrued retirement benefits to employees are provided

Accrued special repair and maintenance are provided

at the amount calculated based on the expected retire-for planned major repair and maintenance activities onment benefit obligation and the fair value of pension

tanks in certain subsidiaries at amounts accumulated

plan assets at the end of this period. Because certain

through the next activity.

subsidiaries are classified as small enterprises, weemploy a simplified method (at the amount which(r) Leases

would be required to be paid if all active employees

Noncancelable leases are primarily accounted for as

voluntarily terminated their employment as of theoperating leases except that lease agreements whichbalance sheet date) for the calculation of the retire-

stipulate the transfer of ownership of the leased assets

ment benefit obligation of the subsidiaries.

to the lessee are accounted for as finance leases.

Actuarial gains and losses are charged or credited toincome as incurred.

(s) Hedge accounting
The simplified accounting method is applied to interest(n) Accrued retirement benefits to officers

rate swaps. For certain equity accounted companies,

Accrued retirement benefits to officers are stated atdeferred hedge accounting is adopted. In addition, thethe amount which would be required to be paid if all

nominal amount of the derivative transaction is limited

officers terminated their services as of the balance

to within the scope of actual demand, and the Company

sheet date, based on the relevant internal rules.

does not engage in speculative derivative transactions.

(o) Liabilities for site restoration and(t) Research and development expenses­decommissioning costs
Liabilities for site restoration and decommissioning

Research and development expenses are charged toincome as incurred.

costs are provided for expected future costs for site
restoration and decommissioning.

(u) Income taxes
Deferred tax assets and liabilities are determined based

3(p) Liabilities for losses on development activities

on the differences between financial reporting and the

Liabilities for losses on development activities are pro-tax bases of the assets and liabilities and are measured

vided for provable losses on oil and natural gas develop-

using the enacted tax rates and laws which will be inment activities individually estimated for each project.

effect when the differences are expected to reverse.

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

31, 2008. This translation should not be construed as

amounts is included solely for convenience, as a mattera representation that yen have been, could have been,of arithmetic computation only, at ¥100.20=US$1.00,

or could in the future be, converted into U.S. dollars at

the approximate rate of exchange in effect on March

the above or any other rate.

INPEX Corporation

63

4

SECURITIESa) Information regarding other securities with determinable market value as of March 31, 2007 and 2008 is
as follows:
Millions of yen
March 31, 2007

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 81,806¥101,216¥19,410

61,212
325
408
501
144,252

61,272345
411
502
163,74660
20
3
1
19,494

24,626

19,938(4,688)152,827150
177,603¥321,855

150,215150
170,303¥334,049(2,612)(0)(7,300)¥12,194

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥   4,768¥   5,388¥    620$    47,585$    53,772$    6,187

241,84336501
247,148

243,098
38
505
249,029

1,255
2
4
1,881

2,413,603
359
5,000
2,466,547

2,426,128379
5,040
2,485,319

12,52520
40
18,772

76,51570,427(6,088)763,623

702,864(60,759)

58,897
325
373
9,228
145,338¥392,486

55,809
301
334
7,422
134,293¥383,322(3,088)(24)(39)(1,806)(11,045)¥ (9,164)587,794
3,243
3,723
92,0961,450,479$3,917,026

556,976
3,004
3,334
74,072
1,340,250$3,825,569(30,818)
(239)
(389)
(18,024)(110,229)$ (91,457)

Securities with fair values
exceeding their acquisition cost:
Stock ................................................
Bonds:   Public bonds ..................................
   Corporate bonds ...........................
   Other debt securities .....................
Others . .............................................
Subtotal . ..............................................
Securities with acquisition costs
exceeding their fair value:
Stock ................................................
Bonds:   Public bonds ..................................
   Other debt securities .....................
Subtotal . ..............................................
Total .....................................................

Millions of yen
March 31, 2008

Thousands of U.S. dollars

Securities with fair values
exceeding their acquisition cost:
Stock ................................................
Bonds:   Public bonds ..................................
   Other debt securities .....................
Others . .............................................
Subtotal . ..............................................
Securities with acquisition costs
exceeding their fair value:
Stock ................................................
Bonds:   Public bonds ..................................
   Corporate bonds ...........................
   Other debt securities .....................
Others . .............................................
Subtotal . ..............................................
Total .....................................................

64

INPEX Corporationb) Information regarding sales of securities classified as other securities for the years ended March 31, 2007
and 2008 is as follows:
Thousands of
U.S. dollars

Millions of yen

2007

2008

2008

¥67,260¥ 2,610¥51,580¥     16$514,770$    160

Years ended March 31,

Proceeds from sales .......................................................................................
Loss on sales ..................................................................................................

c) Components of other securities without a determinable market value as of March 31, 2007 and 2008 aresummarized as follows:
Millions of yen

Thousands of
U.S. dollars

2007

2008

2008

¥38,274¥38,274¥38,286¥38,286$382,096$382,096

Years ended March 31,

Other securities:
Unlisted securities* ....................................................................................
Total .............................................................................................................

* An allowance is provided for investments in exploration companies at an estimated amount based on the financial position of the investees.

d) Redemption schedule for securities with maturity dates classified as other securities as of March 31, 2008 is
as follows:
Millions of yen

March 31, 2008

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

More than
10 yearsThousands of U.S. dollars

1 year or
lessMore than
1 yearbut less than
5 years

More than
5 years
but less than
10 yearsMore than
10 years

Debt securities:

Public bonds ..................... ¥97,164 ¥161,062 ¥11,454 ¥29,226 $969,701 $1,607,405 $114,311 $291,677
Corporate bonds ...............
301
—
—
—
3,004
—
—
—
Other ................................
—
334
38
—
—
3,333
379
—
Total ..................................... ¥97,465 ¥161,396 ¥11,492 ¥29,226 $972,705 $1,610,738 $114,690 $291,677

5

SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of March 31, 2007 and 2008 are as follows:

March 31,

Millions of yen

Thousands of
U.S. dollars

2007

2008

2008

¥375
¥375

¥325
¥325

$3,243$3,243

Short-term borrowings from banks and others(Interest rates ranging from 0.930% to 1.625% and from1.240% to 1.875% at March 31, 2007 and 2008) . .....................................
Total ..............................................................................................................

INPEX Corporation

65

Long-term debt as of March 31, 2007 and 2008 are as follows:
Millions of yen

Thousands of
U.S. dollars

2007

2008

2008

¥248,594
50,274¥198,320¥193,763
18,950¥174,813$1,933,763
189,122$1,744,641

Millions of yen

Thousands of
U.S. dollars

2007

2008

2008

¥ 2,181
—
8,748
1,826
9,999
36
¥22,790¥ 2,447
3,166
10,059
1,826
6,513
0
¥24,011$ 24,421
31,597
100,389
18,22465,0000$239,631

Millions of yen

Thousands of
U.S. dollars

March 31,

Loans from banks and others, due through 2019
(Interest rates ranging from 1.000% to 6.340% and from1.000% to 5.800% at March 31, 2007 and 2008) . ..............................
Less: Current portion ..............................................................................
Total .......................................................................................................

Assets pledged as of March 31, 2007 and 2008 are as follows:

March 31,

Buildings and structures ..........................................................................
Wells ......................................................................................................
Machinery, equipments and vehicles .......................................................
Land .......................................................................................................
Investment securities . .............................................................................
Other . ....................................................................................................
Total .......................................................................................................

The above assets were pledged against the following liabilities:

2007

2008

2008

¥     95
5,480
15,272
17¥20,864¥     95
3,724
13,21817¥17,054$    948
37,166
131,916170$170,200

March 31,

Short-term loans .....................................................................................
Accounts payable—other . ......................................................................
Long-term debt ......................................................................................
Other . ....................................................................................................
Total .......................................................................................................

In addition, investment securities of ¥7,209 million as of March 31, 2007 and ¥ 6,908 million ($68,942 thousand) as ofMarch 31, 2008 are pledged as collateral for the BTC Pipeline Project Finance.
The aggregate annual maturities of long-term debt subsequent to March 31, 2008 are summarized as follows:

66

INPEX Corporation

Years ending March 31,

Millions of yen

Thousands of
U.S. dollars

2009 ..........................................................................................................................
2010 ..........................................................................................................................
2011 ..........................................................................................................................
2012 ..........................................................................................................................
2013 ..........................................................................................................................
2014 and thereafter ...................................................................................................
Total ...........................................................................................................................

¥ 18,950
18,744
18,623
17,221
5,775
114,450¥193,763$  189,122
187,066
185,858
171,866
57,635
1,142,216$1,933,763

6

INCOME TAXESThe Company and its domestic consolidated subsidiaries are subject to a number of taxes based on income which, inthe aggregate, resulted in a statutory tax rate of approximately 40.7% in 2007 and 2008.
The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2007 and2008 differ from the statutory tax rate for the following reasons:Years ended March 31,

2007

2008

Statutory tax rate ...............................................................................................................
Effect of:Permanently non-taxable income such as dividend income .........................................
Valuation allowance ...................................................................................................
Foreign taxes ..............................................................................................................
Foreign tax credits ......................................................................................................
Adjustment of deducted amounts of foreign taxes . ....................................................
Net operating losses utilized .......................................................................................
Equity in earnings of affiliates .....................................................................................
Amortization of goodwill ............................................................................................
Differences of effective tax rates applied to income of foreign subsidiaries ..................
Differences of effective tax rates applied to tax effect accounting ...............................
Other .........................................................................................................................

40.7%

40.7%

(0.3)
(0.1)
68.0
(18.4)(15.9)
—
(0.1)
0.5
(4.6)
—
0.7

(0.7)
0.2
70.5
(19.1)(11.3)
(0.9)
(0.1)
0.4
(4.7)
(4.2)
0.8

Effective tax rate ................................................................................................................

70.5%

71.6%

INPEX Corporation

67

The significant components of deferred tax assets and liabilities as of March 31, 2007 and 2008 are as follows:
Millions of yen

Thousands of
U.S. dollars

2007

2008

2008

¥ 42,305
4,543
5,499
3,482
3,223
31,375
10,4993,542
3,883¥ 53,308
4,543—
11,881
3,122
11,326
6,071
14,9903,772$  532,016
45,339—118,573
31,157113,034
60,589149,601
37,645

foreign currencies . ............................................................................
Liabilities for site restoration and decommissioning costs .....................
Unrealized holding loss on securities ...................................................
Other ..................................................................................................
Total gross deferred tax assets .................................................................
Valuation allowance . ..............................................................................
Total deferred tax assets . ........................................................................
Deferred tax liabilities:
Foreign taxes . .....................................................................................
Translation differences due to an application of

1,395
2,091
—
8,458
120,295(91,186)
29,109

1,004
2,256
3,058
8,472
123,803(77,114)
46,68910,02022,51530,51984,551
1,235,559(769,601)
465,958

7,371

15,595

155,639

purchase accounting method ............................................................
Reserve for exploration . ......................................................................
Unrealized holding gain on securities ..................................................
Translation differences of asset and liabilities denominated in

29,945
5,479
2,969

22,526
5,235—

224,81052,245—

foreign currencies . ............................................................................
Other ..................................................................................................
Total deferred tax liabilities . ....................................................................
Net deferred tax liabilities .......................................................................

—
7,178
52,942¥ 23,833

9,676
7,487
60,519¥ 13,830

96,56774,721
603,982$  138,024

March 31,

Deferred tax assets:
Investments in related parties ..............................................................
Loss on revaluation of land . ................................................................
Non-deductible accounts payable—other ............................................
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 asset and liabilities denominated in

68

INPEX Corporation

7

NET ASSETS
As of March 31, 2008, the total number of the• Capital reduction­Company’s shares issued consisted of 2,358,409.13• Dissolution

shares of common stock and 1 special class share. The

The special class shareholder may request the

special class share has no voting rights at the common­Company to acquire the special class share. Besides,

shareholders’ meeting, but the ownership of the spe-

the Company may also acquire the special class sharecial class share gives its holder a right of veto overby the resolution of a Board of Directors meeting incertain important matters by imposing the requirementcase of that special class share is transferred to a non-to obtain a class vote. However, requirements stipu-

public entity.

lated in the Articles of Incorporation need to be met in

The Corporate Law of Japan provides that an amountcases involving the appointment or removal of direc-

equal to 10% of the amount to be disbursed as distribu-

tors, the disposition of important assets or the exercise

tions of capital surplus (other than capital reserve) andof the veto as follows:

retained earnings (other than legal reserve) be trans-• Appointment and removal of directors

ferred to the capital reserve and the legal reserve respec-• Disposition of all or part of the material assets

tively until the total of capital reserve and the legal• Amendments to the Article of Incorporation withreserve equals 25% of the common stock account.

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

Such distribution can be made at any time by resolu-and (ii) the granting of voting rights to the Company’stion of the shareholders, or by the Board of Directors if

shares other than common stock

certain conditions are met, but neither the capital• Mergers, share exchanges or share transfers

8

reserve nor the legal reserve is available for distributions.

AMOUNTS PER SHARE
Yen

Years ended March 31,

Net income .....................................................................................
Cash dividends ...............................................................................
Net assets .......................................................................................

U.S. dollars

2007

2008

2008

¥ 70,423.45
7,000.00
436,467.92¥ 73,510.14
7,500.00
491,168.09$  733.63
74.85
4,901.88

Net income per share is computed based on the net

proposed by the Board of Directors together with theincome available for distribution to shareholders ofinterim cash dividends paid.

common stock and the average number of shares ofcommon stock outstanding during the year.
Cash dividends per share represent the cash dividends

Net assets per share are computed based on the net
assets excluding minority interests and the number ofcommon stock outstanding at the year end.

INPEX Corporation

69

9

DERIVATIVES(a) Hedging instruments and hedged items(d) Risk management

The Company has entered into interest rate swap

The execution and control of derivative transactions aretransactions in order to reduce its exposure to interest

based on internal rules. All transactions are reported torate fluctuations.

the director in charge on a timely basis and transaction
confirmations obtained from counterparties on a(b) Hedging policies­regular basis.

The nominal amount of the derivative transaction islimited to within the scope of actual demand, and(e) Fair value of derivatives

the Company does not engage in speculative deriva-

No derivatives are disclosed because hedge accounting

tive transactions.

is applied for all derivative transactions.

(c) Credit risk
The Company is exposed to credit risk in the event of
nonperformance by the counterparties to those derivative transactions, but any such risk would not be material because the Company enters into transactions onlywith financial institutions or trading companies withhigh credit ratings.

10 RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses included in selling, general and administrative expenses amounted to ¥301 millionand ¥2,229 million ($22,246 thousand) for the years ended March 31, 2007 and 2008 respectively.

11 RETIREMENT BENEFITS
1. Retirement benefit obligation as of March 31, 2007 and 2008 are as follows:
Millions of yen

Years ended March 31,

Retirement benefit obligation ...............................................................
Plan assets at fair value .........................................................................
Unfunded retirement benefit obligation ................................................
Unrecognized actuarial gain or loss .......................................................
Accrued retirement benefits to employees.............................................

70

INPEX Corporation

Thousands of
U.S. dollars

2007

2008

2008

¥(15,707)
7,336(8,371)—¥ (8,371)¥(15,750)
7,105(8,645)—¥ (8,645)$(157,185)
70,908(86,277)—$ (86,277)

Certain subsidiaries had pension assets of ¥1,634 million, which is not included in above figures, in the MultiEmployer Pension Fund Plan for the year ended March 31, 2007. Funding status and contributory percentage of theMulti-Employer Pension Fund Plan for the year ended March 31, 2008 are as follows:

March 31,

Funding status as of March 31, 2007
Plan assets at fair value ......................................................................................
Retirement benefit obligation .............................................................................
Balance
Contributory percentage of the Multi-Employer Pension Fund Plan

Millions of yen

Thousands of
U.S. dollars

2008

2008

¥175,105
159,848¥ 15,257$1,747,555
1,595,290$  152,265

0.7%(weighted average for the year ended March 31, 2007) .......................................

0.7%

2. Retirement benefit expenses for the years ended March 31, 2007 and 2008 are as follows:
Millions of yen

Thousands of
U.S. dollars

Years ended March 31,

2007

2008

2008

Service cost . ...................................................................................
Interest cost ....................................................................................
Expected return on plan assets . ......................................................
Amortization of actuarial gain or loss ..............................................
Retirement benefit expenses ...........................................................

¥912
273
(106)
(145)
¥934

¥  846
274
(108)
153
¥1,165$ 8,443
2,735(1,078)
1,527$11,627

3. The assumptions used in accounting for the above plans are as follows:
Years ended March 31,

2007

2008

Discount rate ..................................................................
Expected return on plan assets . ......................................

2.0%
1.5%

2.0%
1.5%

Period for amortization of actuarial gain or loss ..............

Amortized as incurred

Amortized as incurred

INPEX Corporation

71

12 GOODWILL
The changes in the carrying amount of goodwill for the years ended March 31, 2007 and 2008 are as follows:
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,

Balance at beginning of year . ...............................................................
Goodwill acquired during the year ........................................................
Amortization of goodwill ......................................................................
Balance at end of year ..........................................................................

2007

2008

2008

¥       —139,084(6,978)¥132,106¥132,106(3,845)(6,617)¥121,644$1,318,423(38,373)(66,038)$1,214,012

Goodwill acquired during the year ended March 31, 2007 mainly consisted of goodwill related to the businessintegration.
Negative goodwill acquired during the year ended March 31, 2008 consisted of negative goodwill related to thetaking effect of exploration and production agreement in Venezuela.

13 LEASES
The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of theleased assets as of March 31, 2007 and 2008, which would have been reflected in the consolidated balance sheets if
finance lease accounting had been applied to the finance leases currently accounted for as operating leases.
Millions of yen

Thousands of
U.S. dollars

March 31,

2007

2008

2008

Acquisition costs of leased property ......................................................
Accumulated depreciation ....................................................................
Net book value .....................................................................................

¥955
518
¥437

¥961
614
¥347

$9,591
6,128$3,463

Lease payments relating to finance leases accounted for as operating leases amounted to ¥182 million for the year
ended March 31, 2007 and ¥174 million ($1,737 thousand) for the year ended March 31, 2008, which were equal tothe depreciation expense of the leased assets computed by the straight-line method over the lease terms.
Future minimum lease payments (including the interest portion) subsequent to March 31, 2008 for finance leasetransactions accounted for as operating leases are summarized as follows:
Years ending March 31,

2009 ............................................................................................................................
2010 and thereafter .....................................................................................................
Total .............................................................................................................................

72

INPEX Corporation

Millions of yen

Thousands of
U.S. dollars

¥140
207
¥347

$1,3972,066$3,463

14 CONTINGENT LIABILITIESAs of March 31, 2008, the Company and its consolidated subsidiaries were contingently liable as guarantors ofindebtedness of affiliates in the aggregate amount of ¥29,078 million ($290,200 thousand). In addition, INPEX BTC
Pipeline, Ltd. a consolidated subsidiary, was contingently liable for next scheduled payment, which was ¥340 million($3,393 thousand) as of December 31, 2007, as the guarantor of indebtedness of BTC Pipeline Project Finance undercertain conditions.

15 SEGMENT INFORMATIONAs net sales, operating income and total assets of the oil and natural gas business constituted more than 90% of theconsolidated totals for the years ended March 31, 2007 and 2008, the disclosure of business segment information has
been omitted.
The geographical segment information for the Company and its subsidiaries for the years ended March 31, 2007 and2008 is summarized as follows:
Millions of yen
Japan

Asia &
Oceania (a)Sales to third parties ..........................
Intercompany sales and transfers
between segments . .........................

¥ 77,322¥387,543

0

—

—

—

—

0

(0)

—

Total sales ..........................................
Operating expenses ...........................

77,32254,306

387,543
145,638

118,618
82,996

386,009119,282

221
1,660

969,713403,882(0)6,754

969,713
410,636

Year ended March 31, 2007

NIS (b)¥118,618

Middle East
& Africa (c) Americas (d)¥386,009¥   221

Total

Eliminations

Consolidated¥  969,713¥      —¥  969,713

Operating income ..............................

23,016

241,905

35,622

266,727(1,439)565,831(6,754)

559,077

Total assets ........................................

¥197,405¥322,116¥320,574¥254,072¥17,776¥1,111,943¥496,164¥1,608,107(a) Asia & Oceania: Indonesia, Australia, East Timor, Vietnam(b) Newly Independent States (NIS): Azerbaijan, Kazakhstan(c) Middle East & Africa: UAE, D.R.Congo, Iran, Libya, Egypt, Algeria(d) Americas: Venezuela, Ecuador, USA
Millions of yen

Japan

Asia &
Oceania (a)Eurasia(Europe &NIS) (b)Total

Eliminations

Consolidated

Sales to third parties ..........................

¥ 93,882¥452,542¥183,879¥464,523¥ 8,139¥1,202,965¥      —

¥1,202,965

Total sales ..........................................
Operating expenses ...........................

93,882
61,950452,542
165,837

183,879
97,843

464,523
140,492

8,139
16,101

1,202,965
482,223—6,531

1,202,965
488,754

Year ended March 31, 2008

Middle East
& Africa (c) Americas (d)Operating income ..............................

31,932286,705

86,036

324,031(7,962)

720,742(6,531)

714,211

Total assets ........................................

¥212,306¥360,298¥363,184¥299,563¥60,656¥1,296,007¥511,894¥1,807,901

INPEX Corporation73Thousands of U.S. dollars

Year ended March 31, 2008

Japan

Eurasia(Europe &NIS) (b)Asia &
Oceania (a)Middle East
& Africa (c) Americas (d)Sales to third parties ........................ $  936,946 $4,516,387 $1,835,120 $4,635,958 $ 81,228
Total sales ........................................
Operating expenses .........................

936,946618,2634,516,387
1,655,060

1,835,120
976,477

4,635,958
1,402,116

81,228160,689

Operating income ............................

318,683

2,861,327

858,643

3,233,842(79,461)

Total assets ...................................... $2,118,822 $3,595,789 $3,624,591 $2,989,651 $605,349

Eliminations

Consolidated$12,005,639 $       —Total$12,005,639

12,005,639
4,812,605—
65,18012,005,639
4,877,785

7,193,034(65,180)

7,127,854$12,934,202 $5,108,722$18,042,924(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
The geographical segment information for the Company and its subsidiaries has been reflected in the regions basedon the location of operations.
While the classification of region until the previous fiscal year had been “Japan,” “Asia & Oceania,” “NIS,” “Middle
East & Africa,” and “Americas,” the “NIS” was changed to “Eurasia (Europe & NIS)” due to acquisition of interest in
UK project during the year ended March 31, 2008.
Overseas sales
Overseas sales, which include sales (other than exports to Japan) of its overseas subsidiaries, for the years ended
March 31, 2007 and 2008 are summarized as follows:
Millions of yen
Year ended March 31, 2007

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

Asia &
Oceania (a)Other (b)Total¥319,548 ¥53,557¥373,105
969,713

33.0%

5.5%

38.5%

(a) Asia & Oceania: South Korea, Taiwan, Indonesia, Singapore, Thailand, China, Malaysia, Philippines, Australia(b) Other: USA, Italy
Millions of yen
Year ended March 31, 2008

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

Asia &
Oceania (a)Other (b)Total¥381,147 ¥84,470 ¥  465,617
1,202,965
31.7%

7.0%

38.7%

Thousands of U.S. dollars
Asia &
Oceania (a)Other (b)

31.7%

7.0%

(a) Asia & Oceania: South Korea, Taiwan, Indonesia, Singapore, Thailand, China, Philippines, Australia(b) Other: USA, Italy

74

INPEX Corporation

Total$3,803,862 $843,014 $ 4,646,876
12,005,639
38.7%

Report of Independent Auditors

Report of Independent Auditors

The Board of Directors
INPEX Holdings Inc.
We have audited the accompanying consolidated balance sheets of INPEX Holdings Inc. andconsolidated subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements
of income, changes in net assets, and cash flows for the years then ended, all expressed in yen.
These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, theconsolidated financial position of INPEX Holdings Inc. and consolidated subsidiaries at March 31,
2008 and 2007, and the consolidated results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect tothe year ended March 31, 2008 are presented solely for convenience. Our audit also included thetranslation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been
made on the basis described in Note 3 to the consolidated financial statements.

Tokyo, Japan
June 23, 2008

INPEX Corporation

75

76

INPEX Corporation

Operating Data andCorporate Information

Contents
Oil and Gas Reserves and Production Volume . ...............................................78
Subsidiaries and Affiliates ..............................................................................84

INPEX Corporation

77

Oil and Gas Reserves and Production Volume

1

Oil and Gas Reserves
Definition of Proved Reserves and Probable Reserves Oil and Gas Reserves and Production Volume
INPEX CORPORATION commissioned DeGolyer and(SPEE). Probable reserves, as defined by the four organi-

MacNaughton, an independent petroleum engineeringzations, are reserves outside proved reserves that are

consultant in the United States, to assess major proved

less likely to be recovered than proved reserves but

reserves of our group. The definition of proved

more certain to be recovered than possible reserves

reserves evaluated by DeGolyer and MacNaughton isbased on analyses of geological and engineering data.

based on the U.S. Securities and Exchange Commis-

In this context, when probabilistic methods aresion’s Regulation S-X, Rule 4-10, which is widely

employed, there should be at least a 50% probability

known among U.S. investors. Proved oil and gasthat the quantities actually recovered will equal orreserves are estimated quantities that geological andexceed the sum of estimated proved and probableengineering data demonstrate with reasonable cer-

reserves. The difference between this definition and thetainty to be recoverable in future years from known

definition of proved reserves based on SEC standards isreservoirs under existing economic and operating

the degree of certainty that oil and gas can be recov-

conditions, as of the date such an estimate is made.

ered as of the date such an estimate is made. Probable

According to SEC Standards, proved reserves are classi-

reserves can be upgraded to proved reserves after the

fied into two categories: “Proved developed reserves”

addition of new technical data, under different eco-can be expected to be recovered through existing wells

nomical conditions, and with advances in operationalwith existing equipment and operating methods andconditions. Nevertheless, probable reserves offer no“proved undeveloped reserves” can be expected to beguarantee of the production of total reserves during a

recovered from new wells on undrilled acreage or fromfuture production period with the same certainty as

existing wells where a relatively major expenditure isproved reserves.

required for recompletion. To be defined as “proved

A reserve evaluation depends on the available geo-

reserves” assumes the existence of a market and eco-logical and engineering data from oil and gas reservoirs,

nomic means of recovery, process and shipment, or thethe maturity of development plans, economic conditions,certainty to gain such means in the short term. Thisetc. as of the date such an estimate is made. Based on

definition is widely regarded as being conservative.

newly available data with progress of productions andNevertheless, the strictness of the definition does notoperations, reserves may be revised in the future. As a

imply any guarantee of the production of total reserves

result, there is a possibility that reserves will be restatedduring a future production period.

upwards or downwards. As to the reserves underIn addition to the assessment of proved reserves

oil and gas prices, investments and cost recoveries andsioned DeGolyer and MacNaughton and Ryder Scottremuneration fees may affect the economic entitlement

to assess its probable reserves based on Petroleum

under the contract. This may lead reserves to increase or

Resources Management System 2007 (PRMS) publisheddecrease. In March 2007, as the SPE, WPC, AAPG andby four organizations of the Society of Petroleum

SPEE together changed the definition of reserves, our­Engineers (SPE), the World Petroleum Congress (WPC),

probable reserves could fluctuate because of various

the American Association of Petroleum Geologists (AAPG)

data, assumptions and changes of definition.

and the Society of Petroleum Evaluation Engineers

78

INPEX Corporation­Production Sharing Contract, not only production but also

based on SEC Standards, the Company also commis-

Proved Reserves
The following tables list the proved reserves of crude oil,assume that integration of INPEX and Teikoku Oil took

condensate, LPG and natural gas of our major subsidiar-place in the year ended March 31, 2006.

ies and equity method affiliates. Disclosure items of

Our proved reserves as of March 31, 2008 wereproved reserves are based on the U.S. Statement of

1,087.57 million barrels for crude oil, condensate andFinancial Accounting Standards No. 69. The Company

LPG, 3,345.7 billion cubic feet for natural gas andwas established on April 3, 2006. Therefore, the1,645.18 million BOE (Barrels of Oil Equivalent) in total.

reserves as of March 31, 2006 in the following tableJapan

Asia & Oceania

Eurasia(Europe & NIS)

Middle East &AfricaAmericas

SubtotalInterest in
Reserves Held by
Equity-Method
Affiliates

Total

Crude oil

Gas

Crude oil

Gas

Crude oil

Gas Crude oil

Gas

Crude oil

Gas

Crude oil

Gas

Crude oil

Gas

Crude oilGas

(MMbbls)(Bcf)(MMbbls)(Bcf)(MMbbls)(Bcf)(MMbbls)(Bcf)(MMbbls)(Bcf)(MMbbls)(Bcf)(MMbbls)(Bcf)(MMbbls)(Bcf)

As of March 31, 2006 . .....................

22

886

105

2,655

116

—

542

—

—

120

785

3,662

305

447

1,090

4,109

Extensions and discoveries . ...........

—

—

—

—

99

—

—

—

—

—

99

—

8

1

107

1

Acquisitions and sales ...................

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Proved developed andundeveloped reserves

Revisions of previous estimates . ....

0

1

16

58

5

—

11

—

—

(6)

32

53

(2)

(2)

30

51

Interim production ........................

(1)

(42)

(15)

(315)

(18)

—

(30)

—

—

(21)

(63)

(378)

(24)

—

(88)

(378)

As of March 31, 2007 . .....................

21

845

106

2,398

203

—

523

—

—

93

853

3,336

286

446

1,139

3,782

Extensions and discoveries . ...........

—

—

20

—

29

—

—

—

1

—

50

—

—

—

50

—

Acquisitions and sales ...................

—

—

0

1

—

—

—

—

—

40

0

41

0

3

0

44

Revisions of previous estimates . ....

0

(0)

(0)

(77)

(5)

—

(5)

—

—

1

(10)

(75)

(4)

(8)

(14)

(83)

Interim production ........................

(1)

(59)

(13)

(309)

(20)

—

(30)

—

(0)

(29)

(64)

(397)

(23)

—

(88)

(397)

As of March 31, 2008 . .....................

20

786

112

2,014

207

—

489

—

1

106

829

2,905

259

440

1,088

3,346

18

724

69

1,213

20

—

488

—

1

70

596

2,007

250

—

845

2,007

Proved developed reserves
As of March 31, 2008 . .....................

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%)
2. MMbbls: Millions of barrels
3. Bcf: Billions of cubic feet
4. Crude oil includes condensate and LPG
5.	The geographical segment “NIS” will be changed to “Eurasia (Europe & NIS)” from March 31, 2008.

INPEX Corporation

79

Standardized Measure of Discounted Future Net Cash Flows and Changes Relating to Proved Oil and
Gas Reserves
In calculating the standardized measure of discounted

is computed by application of a 10% discount factor

future net cash flows, year-end constant price and costto the estimated future net cash flows.
We believe that this information does not represent

assumptions are applied to our estimated annual
future production from proved reserves to determine

the fair market value of the oil and natural gas reserves

future cash inflows. Future development costs areor the present value of estimated cash flows since noestimated based upon constant price assumptions andeconomic value is attributed to potential reserves, theassume the continuation of existing economic, operat-

use of a 10% discount rate is arbitrary, and prices

ing, and regulatory conditions. Future income taxes arechange constantly from year-end levels. Disclosure items

calculated by applying the year-end statutory rate toare based on the U.S. Statement of Financial Account-estimated future pretax cash flows after provision foring Standards No. 69. We use the exchange rates oftaxes on the cost of oil and natural gas properties¥118.09 and ¥100.20 to US$1.00 as of March 31, 2007

based upon existing laws and regulations. The discountand 2008, respectively.
Millions of yen

Total

Japan

Asia & Oceania

NIS

Middle East &Africa8,540,286

814,449

2,645,392

1,444,902

3,612,733

development costs .................................... (2,586,449) (143,763)
Future income tax expenses ........................ (3,430,774) (121,435)
Future net cash flows . ................................ 2,523,063 549,251
10% annual discount for estimated(863,273)(765,801)
1,016,318(425,072) (1,141,377) (12,964)(232,138) (2,308,577) (2,823)
787,692
162,779
7,023

timing of cash flows . ................................ (1,239,469) (305,507)
Standardized measure of discounted future(386,207)(450,200)(95,905)(1,650)net cash flows . .........................................

As of March 31, 2007

Consolidated subsidiaries
Future cash inflows .....................................
Future production andAmericas22,8101,283,594

243,744

630,111

337,492

66,874

5,373

63,534—37,916—22,981

2,637

Share of equity method investees’
standardized measure of discounted future
net cash flows . .........................................

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

80

INPEX Corporation

Millions of yen
As of March 31, 2008

Consolidated subsidiaries
Future cash inflows
Future production and

Total

Japan

Asia & Oceania

Eurasia(Europe & NIS)

10,784,073

879,9423,055,125

2,030,128

Middle East &AfricaAmericas4,792,848

26,030development costs .................................... (2,693,818) (153,954)(751,518) (487,550) (1,279,902) (20,894)
Future income tax expenses ........................ (4,882,340) (145,218) (1,011,368) (384,543) (3,339,299) (1,912)
Future net cash flows . ................................ 3,207,915 580,770 1,292,239 1,158,035
173,647
3,224
10% annual discount for estimatedtiming of cash flows . ................................ (1,583,464) (310,255)
Standardized measure of discounted future
net cash flows . .........................................

(423,485)(765,939)(82,604)(1,181)

1,624,451

270,515

868,754

392,096

91,043

2,043

77,355—

43,219—18,68015,456

Middle East &AfricaAmericas

Share of equity method investees’
standardized measure of discounted future
net cash flows . .........................................

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%)
2.	The geographical segment “NIS” will be changed to “Eurasia” from March 31, 2008.

Millions of yen
Total

Japan

Asia & Oceania

Eurasia(Europe & NIS)

As of April 1, 2007 ...................................
Changes resulting from:
Sales and transfers of oil and produced,

1,283,594

243,744

630,111

337,492

66,874

5,373

net of production costs .........................
Net change in prices, and(628,569)(40,219)(297,020)(127,112)(160,676)(3,542)

production costs . ..................................
Development cost incurred . ....................
Changes in estimated

1,935,375
181,584

111,166
10,077

640,567
101,134

314,185
53,539872,036
15,325(2,579)1,509

development costs ................................
Revisions of previous(90,504)(15,295)(15,745)(77,487)

20,149(2,126)

quantity estimates .................................
(43,723)
Accretion of discount ..............................
264,348
Net change in income taxes .................... (1,005,154)
Extentions, discoveries and(4,232)
29,488(23,532)(49,365)
109,146(179,165)

34,272
39,421(12,479)(26,786)
85,615(790,606)

2,388
678
628

38,369(310,869)—(40,682)

38,417(109,326)—(169,735)

—
9,112

(48)
(238)

1,624,451

270,515

868,754

392,096

91,043

2,043

Consolidated subsidiaries
Standardized measure, beginning of period

improved recoveries . .............................
Other ......................................................
Standardized measure, end of period
As of April 1, 2008 ...................................

Note: 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

81

Probable Reserves
The following tables list the probable reserves of crude

1,273.80 million barrels for crude oil, condensate andoil, condensate, LPG and natural gas of our major

LPG, 8,682.2 billion cubic feet for natural gas andsubsidiaries and equity method affiliates.

2,720.83 million BOE (Barrels of Oil Equivalent) in total.

Our probable reserves as of March 31, 2008 were

As of March 31, 2008

Japan

Eurasia
Asia & (Europe& NIS)
Oceania5671
Natural gas (Bcf) ................................................................. 196 8,237
Crude oil, condensate and LPG (MMbbls) ...........................
Notes: 1. MMbbls: Millions of barrels
2. Bcf: Billions of cubic feet82

INPEX Corporation

397—

MiddleEast &
Africa51—

SubtotalInterest in
Reserves
Held by
Equity-Method
Affiliates

Total

77 1,201
108 8,541

73
141

1,274
8,682

Americas2

Oil and Gas Production
The following tables list average daily productions fortable assume that integration of INPEX and Teikoku Oilcrude oil, natural gas, and the total of crude oil andtook place in the year ended March 31, 2006.

natural gas by region. The proportional interests in

Our productions for the year ended March 31, 2007

production by our equity-method affiliates are notwere 242 thousand barrels per day for crude oil, con-broken down by geographical regions. the Company

densate and LPG, 1,089 million cubic feet per day for

was established on April 3, 2006. Therefore, the ­figuresnatural gas and 423 thousand BOE (Barrels of Oil Equiv-

for the year ended March 31, 2006 in the following

alent) per day in total.

Fiscal year ended March 31

Crude oil (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 (Millions of barrels) ....................................................
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 (Billions of cubic feet) ................................................

2006

2007

2008

3.2
44.7
27.1
79.6
2.2
156.8
61.2
218.0
79.6

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

96.7
787.8

127.8
865.8

161.5
845.7

76.6
961.2

57.5
1,051.1

81.6
1,088.8

961.2
350.8

1,051.1
383.6

1,088.8
398.5

19.3
176.1
27.1
79.6
14.9
317.0
61.2
378.2
138.0

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

Crude oil and natural gas(Thousands of barrels of oil 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 (Millions of barrels of oil equivalent) ..........................
Note: Crude oil includes condensate and LPG.

INPEX Corporation

83Subsidiaries and Affiliates
As of March 31, 2008

Consolidated Subsidiaries
Company Name

Issued Capital*(Millions of yen)

INPEX CORPORATION

29,460

Teikoku Oil Co., Ltd.

19,579Japan Oil Development Co., Ltd.

18,800INPEX Natuna, Ltd.

5,000

INPEX Alpha, Ltd.

3,814

INPEX Sahul, Ltd.

4,600

INPEX Jawa, Ltd.

4,804

INPEX Sumatra, Ltd.

400

INPEX ABK, Ltd.

2,500

INPEX Southwest Caspian Sea, Ltd.

53,594

INPEX Tengah, Ltd.

1,020

INPEX Browse, Ltd.

30,690INPEX Masela, Ltd.

24,783

INPEX North Caspian Sea, Ltd.

50,080

Azadegan Petroleum
Development, Ltd.
INPEX Timor Sea, Ltd.

9,550

INPEX Offshore Northeast
Mahakam, Ltd.
INPEX Offshore
North Mahakam, Ltd.
INPEX Libya, Ltd.

4,647
973
3,875
1,730

INPEX Trading, Ltd.

50

INPEX Services, Ltd.
INPEX Canada, Ltd.

65
16,000INPEX BTC Pipeline, Ltd.

63,800(Thousands of
U.S. dollars)

INPEX DLNGPL Pty Ltd

86,135(Thousands of
AUS dollars)

Teikoku Oil (Venezuela) Co., Ltd.
Teikoku Oil Libya UK LTD

100
36,855(Thousands of
U.S. dollars)

84

INPEX Corporation

Voting Rights
Held by Us (%)

Main Business100.00% Exploration, development, production and sales of oil and natural gas overseas,
primarily in Indonesia
100.00% Exploration, development, production and sales of oil and natural gas in Japanand overseas
100.00% Exploration, development, production and sales of oil in ADMA Block, United
Arab Emirates
100.00% Exploration, development, production and sales of oil and natural gas in SouthNatuna Sea Block B, Indonesia
100.00% Exploration, development, production and sales of oil and natural gas in WA10-L Block and others, Australia
100.00% Exploration, development, production and sales of oil and natural gas in
JPDA03-12 Block in the Timor Sea JPDA
83.50% Exploration, development, production and sales of oil and natural gas in Offshore Northwest Java Block, Indonesia
100.00% Exploration, development, production and sales of oil and natural gas in Offshore Southeast Sumatra Block, Indonesia
95.00% Exploration, development, production and sales of oil in Abu Al Bukhoosh Block,
United Arab Emirates
51.00% Exploration, development, production and sales of oil in ACG Oil Fields,
Azerbaijan
100.00% Exploration, development, production and sales of oil and natural gas in Tengah
Block in Offshore East Kalimantan, Indonesia
100.00% Exploration and development of oil and natural gas in WA-285-P Block andothers, Australia
55.37% Exploration and development of oil and natural gas in Masela Block in the Timor
Sea, Indonesia
45.00% Exploration and development of oil and natural gas in Offshore North CaspianSea Block, Kazakhstan
100.00% Appraisal and development of Azadegan Oil Field, Iran
100.00% Exploration and development of oil and natural gas in JPDA06-105 Block in the
Timor Sea JPDA
100.00% Exploration of oil and natural gas in Saliki Block in Offshore East Kalimantan,
Indonesia
100.00% Exploration of oil and natural gas in East Kalimantan Block in Offshore East
Kalimantan, Indonesia
100.00% Exploration of oil and natural gas in the 42-2&4 and 113-3&4 Blocks in the
Great Socialist People’s Libyan Arab Jamahiriya
100.00% Sales, agency, and brokerage of crude oil and market research and sales planning in connection with oil and natural gas sales
100.00% Management of owned properties and facilities
100.00% Exploration, development, production and sales of oil and natural gas including
oil sands in Canada
100.00% Investment in pipeline construction and management business which connects
Baku (Azerbaijan), Tbilisi (Georgia) and Ceyhan (Turkey)
100.00% Investment in Darwin LNG Pty Ltd., that constructs and operates the under sea
pipeline and LNG plant connecting Bayu Undan Gas/Condensate Field andDarwin (Australia)
100.00% Reactivation of oil and gas fields, exploration and development of new fields
based on joint venture agreement in the Guarico Oriental area, Venezuela
100.00% Exploration of oil in the western onshore, Libya

Company Name

Issued Capital*(Millions of yen)

Teikoku Oil (North America)
Co., Ltd.

16,533(Thousands of
U.S. dollars)

Voting Rights
Held by Us (%)

Main Business100.00% Exploration, development, production and sales of oil in the United States ofAmerica

Teikoku Oil Suez SEJ Co., Ltd.
Teikoku Oil Algeria Co., Ltd.
Teikoku Oil (Con Son) Co., Ltd.

840
708
625

100.00% Exploration of oil in the Gulf of Suez, Egypt
100.00% Exploration and development of oil in the eastern onshore, Algeria
100.00% Exploration of oil in the southern offshore, Vietnam

Teikoku Oil (Cabinda) Co., Ltd.
Teikoku Oil Suez SOB Co., Ltd.
Teiseki Drilling Co., Ltd.

370
281
100

Teiseki Real Estate Co., Ltd.
Teiseki Pipeline Co., Ltd.
Teiseki Propane Co., Ltd.
Teiseki Topping Plant Co., Ltd.

100
100
80
70

Teikoku Oil Nile NQR Co., Ltd.
Teikoku Oil (D.R. Congo) Co., Ltd.
Offshore Iwaki Petroleum Co., Ltd.

191
10
10

100.00% Exploration of oil in the Cabinda area, Angola
100.00% Exploration of oil in the Gulf of Suez, Egypt
100.00% Geothermal production wells, crust activity observation wells, wells for hot
springs, civil engineering
100.00% Real estate rental, management and insurance agency services
100.00% Natural gas transportation, pipeline operation, maintenance and management
100.00% Sales of LPG and petroleum products
100.00% Petroleum refining related production, storage and shipment of petroleum
products
100.00% Exploration of oil in the Western Desert, Egypt
100.00% Exploration, development, production and sales of oil in the D. R. Congo
100.00% Development, production and sales of oil and natural gas in
Offshore Iwaki, Japan
100.00% Exploration, development, production and sales of oil in theeastern onshore, Ecuador

Teikoku Oil Ecuador

35(Thousands of
U.S. dollars)

Saitama Gas Co., Ltd.
TEIKOKU OIL (SURINAME) CO., LTD.
The Egyptian Petroleum­Development Co., Ltd.
Teiseki Transport System Co., Ltd.
Daiichi Warehouse Co., Ltd.

60
170
10,72210100

62.00% City gas sales
54.88% Exploration of oil in the Northern offshore, Suriname
52.70% Exploration, development, production and sales of oil in theWest Bakr Block, Egypt
100.00% Equipment and materials shipping, transport and sales of petrochemical products
94.00% Warehousing services

Other 14 subsidiaries

Equity Method Affiliates
Company Name

Issued Capital*(Millions of yen)

Albacora Japão Petróleo Limitada

6,525

Voting Rights
Held by Us (%)

Main Business

50.00% Lease of production facilities in Albacora Block in Offshore North Campos, Brazil(Thousands of reais)

MI Berau B.V.

656,279(Thousands of euros)

44.00% Exploration and development of natural gas in Berau Block and Tanggu LNG
Project, Indonesia

INPEX Offshore North Campos, Ltd.

6,852

37.50% Financing for oil and natural gas exploration and development projects­conducted by Frade Japão Petróleo Limitada

Angola Japan Oil Co., Ltd.

8,000

19.60% Exploration, development, production and sales of oil in Offshore 3/05 Blockand others, Angola

36,88325.00% Development, production and sales of oil in Offshore Soroosh andNowrooz Fields, IranJJI S&N B.V.

(Thousands of euros)

Japan Ohanet Oil & Gas Co., Ltd.

6,400

15.00% Development, production and sales of natural gas in thesoutheastern onshore, Algeria

Other 8 equity method affiliates

Subsidiaries of Equity Method Affiliates
Company Name

Issued Capital*(Millions of yen)

Frade Japão Petróleo Limitada

103,051(Thousands of reais)

Voting Rights
Held by Us (%)

Main Business0.0003% Exploration and development of oil and natural gas in Frade Block in Offshore
North Campos, Brazil

Other one subsidiary of equity method affiliates* Rounding off fractions less than the unit.

INPEX Corporation

85

Stock Information(As of March 31, 2008)

Share Data
Authorized Shares
9,000,000 common shares
1 special class share
Total Number of Shareholders and Issued Shares
Common shares:................. 33,177 shareholders .............................................. 2,358,409.13 shares
Special class share*:..................... 1 shareholder (Minister of Economy, Trade and Industry) ....................... 1 share* The Company’s Articles of Incorporation stipulate that certain major corporate decisions require a resolution by the holder of thespecial class share in addition to the approval of the shareholders’ meeting or Board of Directors.

Shareholding by Shareholder Type*1
Treasury Stock: 0.09%

Financial Institutions (Including Trust Accounts): 12.30%
Shareholders: 135
Shares: 290,087.20

Shareholders: 1
Shares: 2,047.10
Individuals and Other: 2.78%

Securities Companies: 0.81%

Shareholders: 31,921
Shares: 65,420.84

Shareholders: 71
Shares: 19,045.46

Foreign Corporations
and Other: 16.24%

Other Domestic Corporations: 38.43%

Shareholders: 626
Shares: 383,079.37

Shareholders: 422
Shares: 906,421.41

Minister of Economy,
Trade and Industry*2: 29.35%
Shareholders: 1
Shares: 692,307.75*1 Shareholding ratios are for all issued and outstanding shares*2 Excludes one special class share

Major Shareholders (Common Shares)
Name

86

INPEX Corporation

Number of Shares

Holding (%)

Minister of Economy, Trade and Industry

692,307.75

29.35

Japan Petroleum Exploration Co., Ltd.

267,232.68

11.33

Mitsubishi Corporation

193,460.40

8.20

Mitsui Oil Exploration Co., Ltd.

176,760.00

7.49

Nippon Oil Corporation

111,920.06

4.75

The Master Trust Bank of Japan, Ltd. (Trust Account)

66,441.00

2.82

Japan Trustee Services Bank, Ltd. (Trust Account)

54,804.00

2.32

Marubeni Corporation

46,446.00

1.97

State Street Bank and Trust Company

35,993.00

1.53

JFE Steel Corporation

23,307.00

0.99

Corporate Data

Company Name

Company Headquarters

INPEX CORPORATION

Akasaka Biz Tower 5-3-1 Akasaka, Minato-ku,
Tokyo 107-6332, Japan

Established

Number of Employees (Consolidated) (As of March 31, 2008)

April 3, 2006

1,724

Capital (As of March 31, 2008)

Main Business¥30 billion

Research, exploration, development, production and salesof oil, natural gas and other mineral resources and investment and lending to the companies engaged in these
activities, etc.

Organization Chart
Shareholders’ Meeting

Audit Unit
HSE Unit

Board of Directors

General Administration Division

Board of Auditors

Corporate Strategy & Planning Division
Compliance Committee

Management Committee

Finance & Accounting Division
Logistics & IT System Division

President

Technical Division
Oil & Gas Business Division 1
Oil & Gas Business Division 2
Asia, Oceania & Offshore Japan Project Division
America & Africa Project Division
Eurasia & Middle East Project Division
Abu Dhabi Project Division
Masela Project Division
Ichthys Project Division
Domestic Project Division
Pipeline Construction Division(As of October 1, 2008)

HomepageInquiry

The Company’s Web site provides investors with

Please contact us via any of the following contact points:

the most up-to-date IR information, including

INPEX CORPORATION

financial statements.

Corporate Strategy & Planning Division

http://www.inpex.co.jp/

Corporate Communications Unit
Investor Relations Group
Phone: +81-3-5572-0234
Facsimile: +81-3-5572-0235
INPEX Corporation

87

Akasaka Biz Tower 5-3-1 Akasaka, Minato-ku,
Tokyo 107-6332, Japan
Phone: +81-3-5572-0200

http://www.inpex.co.jp/

Annual Report 2008

The cover and pages 1–42 of this report are printed on paper made from trees in properly managed
forests, while pages 43–86 are printed on paper made of tree-free kenaf fiber. All pages are printed using
environmentally friendly soy ink.

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