Consolidated Financial Results for the year ended March 31, 2018 [Japanese GAAP]

Transcription

1 Consolidated Financial Results for the year ended March 31, 2018 [Japanese GAAP] Note: The following report is an English translation of the Japanese-language original. May 10, 2018 Company name : INPEX CORPORATION Stock Exchange on which the Company is listed : Tokyo Stock Exchange Code number : 1605 URL Representative : Toshiaki Kitamura, President Contact person : Munehiro Hosono, General Manager, Corporate Communications Unit TEL Scheduled date of ordinary general meeting of shareholders : June 26, 2018 Scheduled date of filing Financial Report : June 27, 2018 Scheduled date of payment of cash dividends : June 27, 2018 Preparation of supplementary explanatory materials : Yes Meeting of financial results presentation : Yes (for institutional investors and analysts) (Amounts less than one million yen are rounded off) 1. Consolidated Financial Results for the year ended March 31, 2018 (April 1, March 31, 2018) (1) Consolidated operating results (Figures in % represent the changes from the previous fiscal year) Net sales Operating income Ordinary income Net income attributable to owners of parent For the year ended Millions of yen % Millions of yen % Millions of yen % Millions of yen % March 31, , , , ,362 (12.6) March 31, ,423 (13.4) 336,452 (13.8) 333,891 (10.9) 46, (Note): Consolidated comprehensive income: for the year ended March 31, 2018, (42,266) million; ( %) for the year ended March 31, 2017, 43,905 million; ( %) Net income per share basic Net income per share diluted Net income as a percentage of net assets excluding noncontrolling interests Ordinary income as a percentage of total assets Operating income as a percentage of net sales For the year ended Yen Yen % % % March 31, March 31, (Reference): Equity in earnings (losses) of affiliates: for the year ended March 31, 2018, 4,192 million for the year ended March 31, 2017, 2,175 million (2) Consolidated financial position Total assets Net assets Net assets excluding Net assets excluding non-controlling interests non-controlling interests as a percentage of total per share assets Millions of yen Millions of yen % Yen As of March 31, ,255,565 3,158, , As of March 31, ,312,174 3,207, , (Reference): Net assets excluding non-controlling interests: as of March 31, 2018, 2,916,680 million as of March 31, 2017, 2,943,169 million (3) Consolidated cash flows Cash flows from Cash flows from Cash flows from Cash and cash equivalents operating activities investing activities financing activities at end of the year For the year ended Millions of yen Millions of yen Millions of yen Millions of yen March 31, ,539 (351,908) 34, ,079 March 31, ,810 53,483 (65,428) 316,790

2 2. Dividends Cash dividends per share Cash dividends as a Total cash Payout ratio percentage of net At 1st At 2nd At 3rd At fiscal dividends Total (Consolidated) assets quarter end quarter end quarter end year end (Annual) (Consolidated) For the year ended Yen Yen Yen Yen Yen Millions of yen % % March 31, , March 31, , For the year ending March 31, (forecast) (Note): As of the beginning of the fiscal year, the Company expects an 18 dividend per common stock in total for the year ending March 31, 2019, and additionally plans to issue a commemorative dividend of 6 per share following the Ichthys LNG Project s start-up and shipment of cargo. For Class A stock dividends, please refer to the exhibit Dividends of Class A stock. 3. Forecasted Consolidated Operating Results for the year ending March 31, 2019 (April 1, March 31, 2019) (Figures in % represent the changes from the corresponding period of the previous fiscal year) For the six months ending September 30, 2018 For the year ending March 31, 2019 Net sales Operating income Ordinary income Net income attributable to owners of parent Net income per share Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen 384,000 (14.3) 165,000 (11.2) 165,000 (15.6) 12,000 (60.2) ,000 (7.9) 377, ,000 (4.2) 48, *Notes (1) Significant changes in scope of consolidation (Changes in the specified subsidiaries during the period due to change in scope of consolidation) Newly included:inpex Financial Services Singapore PTE. LTD., JODCO Lower Zakum Limited (Two companies) : Yes (2) Changes in accounting policies, accounting estimates and restatement of corrections 1. Changes in accounting policies resulting from the revision of the accounting standards and other regulations : None 2. Other changes in accounting policies : None 3. Changes in accounting estimates : None 4. Restatement of corrections : None (3) Number of shares issued (Common stock) 1. Number of shares issued at the end of the period (including treasury stock): 1,462,323,600 shares as of March 31, ,462,323,600 shares as of March 31, Number of treasury stock at the end of the period: 1,966,500 shares as of March 31, ,966,500 shares as of March 31, Average number of shares: 1,460,357,100 shares for the year ended March 31, ,460,357,146 shares for the year ended March 31, 2017 (Reference) Non-Consolidated Financial Results 1. Financial results for the year ended March 31, 2018 (April 1, March 31, 2018) (1) Operating results (Figures in % represent the changes from the previous fiscal year) Net sales Operating income Ordinary income Net income For the year ended Millions of yen % Millions of yen % Millions of yen % Millions of yen % March 31, ,574 (9.5) 46,390 (28.4) 30,136 (75.4) 1,764 (98.0) March 31, ,160 (20.6) 64,792 (24.1) 122, , Net income per share basic Net income per share diluted For the year ended Yen Yen March 31, March 31,

3 (2) Financial position Total assets Net assets Net assets as a percentage of total assets Net assets per share Millions of yen Millions of yen % Yen As of March 31, ,918,963 2,383, , As of March 31, ,137,704 2,404, , (Reference): Net assets: as of March 31, 2018, 2,383,265 million as of March 31, 2017, 2,404,076 million *This financial report is not subject to audit by certified public accountants or audit firms. *Explanation regarding the appropriate use of estimated consolidated financial results The aforementioned forecasts "3. Forecasted Consolidated Operating Results for the year ending March 31, 2019" are based on the currently available information and contain many uncertainties. The final results might be significantly different from the aforementioned forecasts due to changes in business conditions including oil and natural gas price levels, production and sales plans, project development schedules, government regulations and financial and tax schemes. Please refer to "1. (4) Outlook for the Next Period" on page 4.

4 Exhibit: Dividends of Class A stock Cash dividends per share At 1st quarter end At 2nd quarter end At 3rd quarter end At fiscal year end Total For the year ended Yen Yen Yen Yen Yen March 31, , , , March 31, , , , For the year ending March 31, , , , (forecast) (Note): The Company conducted a stock split at a ratio of 1:400 of common stock effective October 1, However, for Class A stock (unlisted), no stock split was implemented. The article, which shows that dividends of Class A stock are equivalent to dividends of a common stock prior to the stock split, is specified in the Articles of Incorporation. As of the beginning of the fiscal year, the Company expects a 7,200 dividend per Class A stock for the year ending March 31, 2019, and additionally plans to issue a commemorative dividend per Class A stock similarly to the common stock, following the Ichthys LNG Project s start-up and shipment of cargo.

5 Index of the Attachments 1. Summary of Operating Results and other 2 (1) Summary of Consolidated Operating Results 2 (2) Summary of Consolidated Financial Position 3 (3) Summary of Cash Flows 4 (4) Outlook for the Next Period 4 (5) Dividends for the year ended March 31, 2018 and for the year ending March 31, Basic Rationale for Selection of Accounting Standards 5 3. Consolidated Financial Statements and Principal Notes 6 (1) Consolidated Balance Sheet 6 (2) Consolidated Statement of Income and Consolidated Statement of Comprehensive Income 8 Consolidated Statement of Income 8 Consolidated Statement of Comprehensive Income 9 (3) Consolidated Statement of Changes in Net Assets 10 (4) Consolidated Statement of Cash Flows 12 (5) Notes to Consolidated Financial Statements 14 (Conditions or events that indicate there could be substantial doubt about the Company's ability to continue as a going concern) 14 (Basis of Presenting Consolidated Financial Statements) 14 (Changes in the Presentation) 18 (Consolidated Balance Sheet) 19 (Consolidated Statement of Income) 21 (Consolidated Statement of Comprehensive Income) 23 (Consolidated Statement of Changes in Net Assets) 24 (Consolidated Statement of Cash Flows) 26 (Segment Information and Others) 27 (Financial Instruments) 31 (Securities) 35 (Derivative Transactions) 37 (Per Share Information) 38 (Significant Subsequent Events) 38 (Omissions of Disclosure) Non-Consolidated Financial Statements 39 (1) Non-Consolidated Balance Sheet 39 (2) Non-Consolidated Statement of Income 42 (3) Non-Consolidated Statement of Changes in Net Assets 43 (4) Notes to Non-Consolidated Financial Statements 47 (Conditions or events that indicate there could be substantial doubt about the Company's ability to continue as a going concern) Other 48 (1) Production, Orders Received and Sales Performance 48 1

6 1. Summary of Operating Results and other (1) Summary of Consolidated Operating Results In the fiscal year ended March 31, 2018, the global economy overall continued to gradually recover thanks to steady economies in Europe and the United States and economic recovery in China and other Asian markets despite uncertainty caused by geopolitical risks. The Japanese economy continued on its trajectory of moderate recovery as consumption per capita and capital expenditures showed signs of recovery as corporate earnings, employment rates and the income environment continued to improve. Of the international crude oil price indices, which significantly influence the financial performance of the INPEX Group, Brent crude, commonly considered a benchmark index, started the fiscal year at US$53.12 per barrel on April 1, 2017 and continued on a downward trend, eventually falling to US$44.82 per barrel in late June over concerns of crude oversupply following reports on the recovery of crude oil production in Libya and Nigeria in addition to (observations of) high U.S. crude inventory figures and growing U.S. shale oil production. Thereafter, in July the index rebounded with the easing of oversupply concerns as Nigeria voluntarily capped its production capacity and Saudi Arabia announced cuts in its August export shipments at the Joint OPEC-Non-OPEC Ministerial Monitoring Committee. The index continued to climb to a record high of US$70.53 in late January. Although Brent crude then fell temporarily to US$62.59 over renewed concerns of excess supply following Iran's production output increase and U.S. shale [nc1] oil production hitting a record high in February, the index rose again in March driven by bullish factors such as Saudi Arabia and others conveying their intention to continue their collective production reduction into 2019 while achieving an all-time record in February in terms of the production cut compliance rate. Brent crude ultimately closed out the fiscal year at US$70.27 per barrel on March 31, Meanwhile, in Japan, crude oil and petroleum product prices shifted in correlation with international oil prices. The INPEX Group's average crude oil sales price for the fiscal year ended March 31, 2018 reflected this shift and rose to US$56.30 per barrel, up US$9.89 from the previous fiscal year. The foreign exchange market, another important factor that affects the business of our Group, began to trade at 111 level against the U.S. dollar. After that, Current Employment Statistics (CES) in early-april was lower than the market forecast and geopolitical risk in Middle East and East Asia was getting higher, the yen appreciated to 108 level against the U.S. dollar. However, because Emmanuel Macron won French Presidential election in May and the concern about political situation in Europe pulled back, the yen depreciated to 114 level against the U.S. dollar. In summer, the yen has remained in steadiness roughly lower 109 to lower 114 level against the U.S. dollar. After that, European Central Bank (ECB) showed the possibility to change an easy-money policy and the Euro appreciated against the U.S. dollar. At the beginning of September, because of Hurricane in the U.S. and geopolitical risk in Asia, the yen appreciated to 107 level against the U.S. dollar. At the end of 2017, the yen picked up to 112 level against the U.S. dollar through the balance-sheet shrinking by Federal Reserve Board (FRB) in September and the rise in interest-rate in December. However, in 2018, through Treasury Secretary Steven Mnuchin s statement that a weaker dollar is good for U.S. trade, increase in volatility and the stock price crash by the result of CES in February and concern about trade protectionism, the yen appreciate to mid 104 level. TTM closed at to the U.S. dollar which turned out to be 5.93 higher than that of the fiscal year end of March 31, Reflecting these situations, the average sales exchange rate for our Group for this fiscal year was against the U.S. dollar, which is 2.67 lower than that of the previous fiscal year. Consolidated net sales for the year ended March 31, 2018 increased by 59.2 billion, or 6.8%, to billion from the previous fiscal year due to an increase in crude oil price. Net sales of crude oil increased by 93.0 billion, or 15.1%, to billion, and net sales of natural gas decreased by 34.4 billion, or 14.2%, to billion. Sales volume of crude oil decreased by 9,325 thousand barrels, or 7.6%, to 112,882 thousand barrels. Sales volume of natural gas decreased by 78,178 million cf, or 22.8%, to 264,816 million cf. Sales volume of overseas natural gas decreased by 86,126 million cf, or 31.7%, to 185,573 million cf, and sales volume of domestic natural gas increased by 213 million m3, or 11.1%, to 2,123 million m3 (79,243 million cf). The average sales price of overseas crude oil increased by US$9.89, or 21.3%, to US$56.30 per barrel. Meanwhile, the average sales price of overseas natural gas decreased by US$0.15, or 2.9%, to US$5.04 per thousand cf. In addition, the average sales price of domestic natural gas increased by 3.00, or 6.9%, to per m3. The average exchange rate of the Japanese yen against the U.S. dollar on consolidated net sales depreciated by 2.67, or 2.5%, to per U.S. dollar from the corresponding period of the previous fiscal year. The increase of 59.2 billion in net sales was mainly derived from the following factors: regarding net sales of crude oil and natural gas, a decrease in sales volume pushing sales down of 88.7 billion, an increase in unit sales price contributing billion to the increase, the depreciation of the Japanese yen against the U.S. dollar contributing 19.3 billion to the increase, and 2

7 an increase in net sales excluding crude oil and natural gas of 0.6 billion. Cost of sales for the year ended March 31, 2018 increased by 44.1 billion, or 9.7%, to billion due to an increase in royalty and others. Exploration expenses decreased by 5.4 billion, or 80.3%, to 1.3 billion. Selling, general and administrative expenses decreased by 0.4 billion, or 0.5%, to 76.9 billion. As a result, operating income increased by 20.9 billion, or 6.2%, to billion. Other income (expenses) improved by 32.4 billion, due mainly to posting gain on reversal of allowance for recoverable accounts under production sharing, meanwhile, posting provision for allowance for recoverable accounts under production sharing for the previous fiscal year. As a result, ordinary income increased by 53.3 billion, or 16.0%, to billion. Extraordinary loss was 79.9 billion as a result of posting impairment loss for certain projects due to a drop in future outlook of natural gas prices in Americas. Total amount of current income taxes and deferred income taxes increased by 38.0 billion, or 14.0%, to billion, and net loss attributable to non-controlling interests was 42.4 billion. As a result of the above effects, net income attributable to owners of parent for the year ended March 31, 2018 decreased by 5.8 billion, or 12.6%, to 40.3 billion. Financial results by segment are as follows: 1) Japan Net sales increased by 17.3 billion, or 16.9%, to billion due to increases in sales volume and sales prices of crude oil and natural gas. Operating income increased by 7.2 billion, or 40.0%, to 25.2 billion. 2) Asia & Oceania Net sales decreased by 69.2 billion, or 31.8%, to billion due to a decrease in sales volume, despite an increase in sales prices of crude oil and natural gas, and the depreciation of the Japanese yen against the U.S. dollar. Operating income decreased by 23.1 billion, or 44.9%, to 28.4 billion. 3) Eurasia (Europe & NIS) Net sales increased by 28.4 billion, or 47.2%, to 88.5 billion due to increases in sales volume and sales price of crude oil, and the depreciation of the Japanese yen against the U.S. dollar. Operating income increased by 9.2 billion, or 76.6%, to 21.3 billion. 4) Middle East & Africa Net sales increased by 83.0 billion, or 17.2%, to billion due to an increase in sales price of crude oil and the depreciation of the Japanese yen against the U.S. dollar, despite a decrease in sales volume. Operating income increased by 28.1 billion, or 10.2%, to billion. 5) Americas Net sales decreased by 0.3 billion, or 2.9%, to 10.9 billion due to a decrease in sales volume of crude oil, despite the depreciation of the Japanese yen against the U.S. dollar. Operating loss increased by 1.2 billion, or 13.8%, to 10.6 billion. (2) Summary of Consolidated Financial Position Consolidated total assets as of March 31, 2018 decreased by 56.6 billion to 4,255.5 billion from 4,312.1 billion as of March 31, Current assets decreased by billion to billion due to a decrease in cash and deposits and others. Fixed assets increased by billion to 3,785.9 billion due to increases in tangible fixed assets, investments and other assets and others. Meanwhile, total liabilities decreased by 7.9 billion to 1,096.6 billion from 1,104.6 billion as of March 31, Current liabilities increased by 11.7 billion to billion and long-term liabilities decreased by 19.6 billion to billion. Net assets decreased by 48.6 billion, to 3,158.8 billion. Total shareholders' equity increased by 11.3 billion, to 2,568.2 billion. Total accumulated other comprehensive income decreased by 37.8 billion to billion and non-controlling interests in net assets decreased by 22.1 billion to billion. 3

8 (3) Summary of Cash Flows As for cash flows for the year ended March 31, 2018, net cash provided by operating activities increased by 2.7 billion to billion from the previous fiscal year due mainly to an increase in impairment loss (non-cash), despite a decrease in income before income taxes and an increase in income taxes paid. Net cash used in investing activities was billion due to a decrease in proceeds from time deposits, and an increase in payments for purchases of mining rights and others, meanwhile, net cash provided by investing activities was 53.4 billion for the previous fiscal year. Net cash provided by financing activities was 34.7 billion due to increases in proceeds from long-term debt and proceeds from non-controlling interests for additional shares and others, meanwhile, net cash used in financing activities was 65.4 billion for the previous fiscal year. After totaling 2.0 billion of the effect of exchange rate changes on cash and cash equivalents, the decrease in cash and cash equivalents for the year ended March 31, 2018 amounted to 40.7 billion. Cash and cash equivalents as of March 31, 2018 totaled billion reflecting the above net decrease of 40.7 billion, from billion at the end of the previous fiscal year. (4) Outlook for the Next Period As for the company s financial outlook, consolidated net sales for the six months ending September 30, 2018 are expected to decrease 14.3% year-on-year to billion, and net sales for the year ending March 31, 2019 are expected to decrease 7.9% year-on-year to billion. Operating income for the six months ending September 30, 2018 is expected to decrease 11.2% year-on-year to billion, while operating income for the year ending March 31, 2019 is expected to increase 5.5% year-on-year to billion. Ordinary income for the six months ending September 30, 2018 is expected to decrease 15.6% year-on-year to billion, and ordinary income for the year ending March 31, 2019 is expected to decrease 4.2% year-on-year to billion. Net income attributable to INPEX CORPORATION for the six months ending September 30, 2018 is expected to decrease 60.2% year-onyear to 12.0 billion, while net income attributable to INPEX CORPORATION for the year ending March 31, 2019 is expected to increase 18.9% year-on-year to 48.0 billion. Net sales for the year ending March 31, 2019 are expected to fall due to an expected drop in crude oil sales volume. While operating income for the year ending March 31, 2019 is expected to rise on the back of a lower cost of sales ratio, ordinary income for the year ending March 31, 2019 is expected to drop due mainly to the absence of temporary profit as posted in the year ended March 31, Net income attributable to INPEX CORPORATION for the year ending March 31, 2019 is expected to increase year-on-year, due in part to the absence of impairment loss. The above estimates are based on a crude oil price assumption of US$65.0 per barrel (Brent) at an exchange rate of 105 to the U.S. dollar through the fiscal year ending March 31, (5) Dividends for the year ended March 31, 2018 and for the year ending March 31, 2019 The INPEX CORPORATION Group has set the year-end dividend at 9 per common stock for the year ended March 31, Combined with the mid-term dividend of 9 per common stock, the total dividend for the year ended March 31, 2018 is 18 per common stock. Also in accordance with its dividend policy, the Group has set the year-end dividend of 3,600 per Class A stock for the year ended 31, Combined with the mid-term dividend of 3,600 per Class A stock (unlisted), the total dividend for the year ended March 31, 2018 is 7,200 per Class A stock. For the year ending March 31, 2019, the Group expects mid-term and year-end dividends each of 9, bringing the total dividend to 18 per common stock and additionally plans to issue a commemorative dividend of 6 per common stock following the Ichthys LNG Project s start-up and shipment of cargo. The Group expects mid-term and year-end dividends of 3,600 each, bringing the total dividend to 7,200 per Class A stock, and additionally plans to issue a commemorative dividend per Class A stock similarly to the common stock, following the Ichthys LNG Project s start-up and shipment of cargo. The Group conducted a stock split at a ratio of 1:400 of common stock effective October 1, However, for Class A stock, no stock split was implemented. The article, which shows that dividends of Class A stock are equivalent to dividends of a common stock prior to the stock split, is specified in the Articles of Incorporation. 4

9 2. Basic Rationale for Selection of Accounting Standards The INPEX Group has been analyzing the differences between International Financial Reporting Standards (IFRS) and accounting principles generally accepted in Japan. The Group will take into consideration the domestic and international situations for appropriate adoption of the IFRS in the future. 5

10 3. Consolidated Financial Statements and Principal Notes (1) Consolidated Balance Sheet Accounts As of March 31, 2017 As of March 31, 2018 (Assets) Current assets Cash and deposits 4 652, ,102 Accounts receivable-trade 72,364 66,900 Marketable securities 5,503 Inventories 1, 4 30,720 1, 4 32,321 Deferred tax assets 7,264 3,231 Accounts receivable-other 83,291 71,014 Recoverable accounts under production sharing 47,263 Other 4 68, ,997 Less allowance for doubtful accounts (20,763) (20,984) Less allowance for recoverable accounts under production sharing (3,701) Total current assets 942, ,582 Fixed assets Tangible fixed assets Buildings and structures, net 214, ,045 Wells, net 44,980 38,323 Machinery, equipment and vehicles, net 120,713 99,472 Land 19,189 19,098 Construction in progress 1,511,660 1,678,743 Other, net 17,478 7,936 Total tangible fixed assets 2, 4, 5 1,928,597 2, 4, 5 2,044,619 Intangible assets Goodwill 60,798 54,037 Exploration and development rights 154, ,168 Mining rights 298, ,086 Other 7,528 6,210 Total intangible assets 521, ,502 Investments and other assets Investment securities 3, 4 246,085 3, 4 367,417 Long-term loans receivable 4 134, ,861 Recoverable accounts under production sharing 611, ,098 Deferred tax assets 25,750 20,263 Other 4 29, ,359 Less allowance for doubtful accounts (8,282) (849) Less allowance for recoverable accounts under production sharing (116,842) (81,625) Less allowance for investments in exploration (2,769) (1,664) Total investments and other assets 919,362 1,199,860 Total fixed assets 3,369,213 3,785,982 Total assets 4,312,174 4,255,565 6

11 Accounts As of March 31, 2017 As of March 31, 2018 (Liabilities) Current liabilities Accounts payable-trade 51,105 45,675 Short-term loans 44,252 71,250 Income taxes payable 45,219 17,234 Accounts payable-other 73,721 94,360 Provision for loss on business 2,920 9,887 Provision for exploration projects 4,478 4,005 Accrued bonuses to officers Asset retirement obligations 4, Other 71,403 66,310 Total current liabilities 297, ,194 Long-term liabilities Long-term debt 643, ,326 Deferred tax liabilities 45,615 35,619 Accrued special repair and maintenance Liability for retirement benefits 5,952 5,937 Asset retirement obligations 104, ,128 Other 6,989 7,110 Total long-term liabilities 807, ,502 Total liabilities 1,104,631 1,096,696 (Net assets) Shareholders' equity Common stock 290, ,809 Capital surplus 676, ,574 Retained earnings 1,595,018 1,609,094 Treasury stock (5,248) (5,248) Total shareholders' equity 2,556,852 2,568,230 Accumulated other comprehensive income Unrealized holding gain (loss) on securities 6,479 10,217 Unrealized gain (loss) from hedging instruments ,724 Translation adjustments 379, ,507 Total accumulated other comprehensive income 386, ,449 Non-controlling interests 264, ,188 Total net assets 3,207,542 3,158,868 Total liabilities and net assets 4,312,174 4,255,565 7

12 (2) Consolidated Statement of Income and Consolidated Statement of Comprehensive Income Consolidated Statement of Income Accounts For the year ended March 31, 2017 For the year ended March 31, 2018 Net sales 874, ,701 Cost of sales 2 453, ,039 Gross profit 420, ,662 Exploration expenses 6,734 1,327 Selling, general and administrative expenses 1, 2 77,389 1, 2 76,971 Operating income 336, ,363 Other income Interest income 10,460 6,477 Dividend income 2,802 4,778 Gain on sales of investment securities 4,999 Equity in earnings of affiliates 2,175 4,192 Gain on reversal of allowance for recoverable accounts under production sharing 17,528 Compensation income 12,625 Other 18,652 9,664 Total other income 39,090 55,266 Other expenses Interest expense 5,228 7,075 Provision of allowance for doubtful accounts 8,308 Provision for allowance for recoverable accounts under production sharing 14,374 Provision for loss on business 3,264 Foreign exchange loss 3,759 10,472 Other 9,980 4,547 Total other expenses 41,651 25,360 Ordinary income 333, ,269 Extraordinary loss Impairment loss 3 6, ,970 Total extraordinary loss 6,366 79,970 Income before income taxes 327, ,299 Income taxes-current 304, ,351 Income taxes-deferred (33,227) 1,048 Total income taxes 271, ,399 Net income (loss) 56,131 (2,100) Net income (loss) attributable to non-controlling interests 9,963 (42,462) Net income attributable to owners of parent 46,168 40,362 8

13 Consolidated Statement of Comprehensive Income Accounts For the year ended March 31, 2017 For the year ended March 31, 2018 Net income (loss) 56,131 (2,100) Other comprehensive income Unrealized holding gain on securities 1,522 3,711 Translation adjustments (19,867) (68,317) Share of other comprehensive income of affiliates accounted for by the equity method 6,119 24,439 Total other comprehensive income 1 (12,225) 1 (40,166) Comprehensive income 43,905 (42,266) Total comprehensive income attributable to Owners of parent 36,564 2,495 Non-controlling interests 7,341 (44,762) 9

14 (3) Consolidated Statement of Changes in Net Assets For the year ended March 31, 2017 Common stock Capital surplus Shareholders' equity Retained earnings Treasury stock Total Shareholders' equity Balance at the beginning of the period 290, ,273 1,575,136 (5,248) 2,536,971 Changes during the period Change in ownership interest of parent arising from transactions with non-controlling shareholders Cash dividends paid (26,286) (26,286) Net income attributable to owners of parent 46,168 46,168 Purchase of treasury stock (0) (0) Net changes in items other than those in shareholders' equity Total changes during the period 19,881 (0) 19,881 Balance at the end of the period 290, ,273 1,595,018 (5,248) 2,556,852 Unrealized holding gain (loss) on securities Accumulated other comprehensive income Unrealized gain (loss) from hedging instruments Translation adjustments Total accumulated other comprehensive income Noncontrolling interests Total net assets Balance at the beginning of the period 4,958 (6,660) 397, , ,910 3,178,803 Changes during the period Change in ownership interest of parent arising from transactions with non-controlling shareholders Cash dividends paid (26,286) Net income attributable to owners of 46,168 parent Purchase of treasury stock (0) Net changes in items other than those in shareholders' equity 1,521 7,377 (18,503) (9,604) 18,462 8,857 Total changes during the period 1,521 7,377 (18,503) (9,604) 18,462 28,739 Balance at the end of the period 6, , , ,372 3,207,542 10

15 For the year ended March 31, 2018 Common stock Capital surplus Shareholders' equity Retained earnings Treasury stock Total Shareholders' equity Balance at the beginning of the period 290, ,273 1,595,018 (5,248) 2,556,852 Changes during the period Change in ownership interest of parent arising from transactions with non-controlling shareholders (2,699) (2,699) Cash dividends paid (26,286) (26,286) Net income attributable to owners of parent 40,362 40,362 Purchase of treasury stock Net changes in items other than those in shareholders' equity Total changes during the period (2,699) 14,076 11,377 Balance at the end of the period 290, ,574 1,609,094 (5,248) 2,568,230 Unrealized holding gain (loss) on securities Accumulated other comprehensive income Unrealized gain (loss) from hedging instruments Translation adjustments Total accumulated other comprehensive income Noncontrolling interests Total net assets Balance at the beginning of the period 6, , , ,372 3,207,542 Changes during the period Change in ownership interest of parent arising from transactions with (2,699) non-controlling shareholders Cash dividends paid (26,286) Net income attributable to owners of 40,362 parent Purchase of treasury stock Net changes in items other than those in shareholders' equity 3,737 25,007 (66,612) (37,866) (22,184) (60,051) Total changes during the period 3,737 25,007 (66,612) (37,866) (22,184) (48,674) Balance at the end of the period 10,217 25, , , ,188 3,158,868 11

16 (4) Consolidated Statement of Cash Flows Accounts Cash flows from operating activities For the year ended March 31, 2017 For the year ended March 31, 2018 Income before income taxes 327, ,299 Depreciation and amortization 91,159 92,805 Impairment loss 6,366 79,970 Amortization of goodwill 6,760 6,760 Provision for allowance for recoverable accounts under production sharing 15,934 (21,190) Provision for exploration projects (240) (458) Other provisions 7,144 6,810 Liability for retirement benefits (1,483) 19 Interest and dividend income (13,262) (11,255) Interest expense 5,228 7,075 Foreign exchange loss (gain) 4,896 11,048 Equity in losses (earnings) of affiliates (2,175) (4,192) Loss (gain) on sales of investment securities (4,999) Recovery of recoverable accounts under production sharing (capital expenditures) Recoverable accounts under production sharing (operating expenditures) 79,873 53,465 (2,823) 9,632 Accounts receivable-trade (16,350) 2,846 Inventories 5,592 (2,097) Accounts payable-trade 4,299 20,604 Accounts receivable-other 11,569 (287) Accounts payable-other 4,181 12,221 Advances received 280 4,848 Other 23,311 12,467 Subtotal 552, ,395 Interest and dividends received 18,773 24,459 Interest paid (2,911) (5,077) Income taxes paid (292,840) (329,238) Net cash provided by (used in) operating activities 275, ,539 12

17 Accounts Cash flows from investing activities For the year ended March 31, 2017 For the year ended March 31, 2018 Payments for time deposits (355,238) (259,990) Proceeds from time deposits 921, ,900 Payments for purchases of tangible fixed assets (278,359) (271,324) Proceeds from sales of tangible fixed assets 4, Payments for purchases of intangible assets (21,953) (1,364) Payments for purchases of investment securities (80,224) (127,785) Proceeds from sales and redemptions of investment securities 10,600 Investment in recoverable accounts under production sharing (capital expenditures) (37,325) (24,135) Decrease (increase) in short-term loans receivable (1,322) 50 Long-term loans made (133,478) (172,533) Collection of long-term loans receivable Payments for purchases of mining rights (100,906) Other 24,118 11,671 Net cash provided by (used in) investing activities 53,483 (351,908) Cash flows from financing activities Increase (decrease) in short-term loans (96) 392 Proceeds from long-term debt 11,760 77,612 Repayments of long-term debt (62,903) (39,250) Proceeds from non-controlling interests for additional shares 16,109 27,570 Cash dividends paid (26,286) (26,291) Cash dividends paid to non-controlling interests (3,939) (2,523) Other (72) (2,766) Net cash provided by (used in) financing activities (65,428) 34,742 Effect of exchange rate changes on cash and cash equivalents (887) (2,083) Net increase (decrease) in cash and cash equivalents 262,977 (40,711) Cash and cash equivalents at beginning of the period 53, ,790 Cash and cash equivalents at end of the period 1 316, ,079 13

18 (5) Notes to Consolidated Financial Statements (Conditions or events that indicate there could be substantial doubt about the Company's ability to continue as a going concern) None (Basis of Presenting Consolidated Financial Statements) 1. Scope of consolidation Number of consolidated subsidiaries: 64 Names of major subsidiaries; Japan Oil Development Co., Ltd., INPEX Alpha, Ltd., INPEX Sahul, Ltd., INPEX Southwest Caspian Sea, Ltd., INPEX Gas British Columbia Ltd., JODCO Onshore Limited, JODCO Lower Zakum Limited, INPEX North Caspian Sea, Ltd., INPEX Browse, Ltd., INPEX Holdings Australia Pty Ltd, INPEX Ichthys Pty Ltd, INPEX Oil & Gas Australia Pty Ltd, INPEX Masela, Ltd and INPEX Financial Services Singapore PTE. LTD. During this period: Number of companies newly included in the scope of consolidation: 3 Number of companies excluded from the scope of consolidation: 3 Details for the above changes: 1) JODCO Lower Zakum Limited has been newly included due to establishment of the company. 2) INPEX Financial Services Singapore PTE. LTD. and INPEX E&P Mexico, S.A. de C.V. have been newly included due to an increase in materiality of the companies. 3) INPEX West Congo Petroleum, Ltd. and INPEX UK Ltd. have been excluded due to completion of liquidation. 4) INPEX Natuna Ltd. has been excluded due to execution of share transfer. Names of major non-consolidated subsidiaries: Sakata Natural Gas, Co., Ltd., Teikoku Oil de Burgos, S.A. de C.V. and TELNITE CO., LTD. (Reason for exclusion from the scope of consolidation) Those companies are not consolidated because their total assets, total net sales, total net income (the equity portion) and total retained earnings (the equity portion) do not have significant impact on the consolidated financial statements. Name of an entity that is not accounted for as our subsidiary even though the Company owns the majority vote: Ichthys LNG Pty Ltd (Reason for not accounted for as our subsidiary) The Company owns the majority vote of Ichthys LNG Pty Ltd through INPEX Holdings Australia Pty Ltd. However, since both parties' affirmative votes are required for important resolutions based on the shareholders agreement between INPEX Holdings Australia Pty Ltd and TOTAL E&P Holding Ichthys, Ichthys LNG Pty Ltd is considered to be an affiliate accounted for by the equity method. 14

19 2. Application of equity method Number of non-consolidated subsidiaries accounted for by the equity method: None Number of affiliates accounted for by the equity method: 20 Names of major affiliates: Angola Block 14 B.V., MI Berau B.V., Angola Japan Oil Co., Ltd., INPEX Offshore North Campos, Ltd. and Ichthys LNG Pty Ltd Names of major non-consolidated subsidiaries and affiliates not accounted for by the equity method: Sakata Natural Gas, Co., Ltd., Teikoku Oil de Burgos, S.A. de C.V., TELNITE CO., LTD. and Tangguh project management Co., Ltd. (Reason for not applying the equity method) These subsidiaries and affiliates are not accounted for by the equity method because their total net income (the equity portion) and total retained earnings (the equity portion) do not have significant impact on the consolidated financial statements. Procedures for application of the equity method: Regarding affiliates accounted for by the equity method having a different closing date from the consolidated closing date, the Company used the financial statements of each affiliate prepared as of its closing date. For certain affiliates, however, the Company used financial statements prepared for consolidation purposes as of the consolidated closing date. 3. Closing dates for the fiscal year of consolidated subsidiaries For the 48 companies for which the closing dates differ from the consolidated closing date, including, but not limited to, INPEX Sahul, Ltd. and INPEX Masela, Ltd., the Company uses the financial statements for the year ended December 31. However, the necessary adjustments have been made to the financial statements of those companies to reflect any significant transactions made between the Company's closing date and those of the consolidated subsidiaries. For the 11 companies including, but not limited to, Japan Oil Development, Co., Ltd., INPEX Southwest Caspian Sea, Ltd., INPEX North Caspian Sea, Ltd., INPEX Holdings Australia Pty Ltd and INPEX Ichthys Pty Ltd, we use their financial statements for the year ended on the consolidated closing date even though their closing date is December

20 4. Accounting policies 1) Valuation method for significant assets (a) Securities Other securities With a determinable market value Other securities with a determinable market value are stated at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in net assets. Cost of securities sold is determined by the moving-average method. Without a determinable market value Other securities without a determinable market value are stated at cost determined by the moving-average method. (b) Derivatives Fair value (c) Inventories Overseas inventories Carried mainly at cost, determined by the average cost method (balance sheet value is carried at the lower of cost or market) Domestic inventories Carried mainly at cost, determined by the moving-average method (balance sheet value is carried at the lower of cost or market) 2) Depreciation method of significant depreciable assets (a) Tangible fixed assets (except leased assets) Depreciation of overseas mining facilities is mainly computed by the unit-of-production method. For other tangible fixed assets, straight-line method of depreciation is applied. Useful lives of significant fixed assets are as follows: Buildings and structures: 2-60 years Wells: 3 years Machinery, equipment and vehicles: 2-22 years (b) Intangible assets (except leased assets) Exploration and development rights Exploration and development rights at the exploration stage are fully amortized in the consolidated fiscal year. Such rights which are at the production stage are amortized by the unit-of-production method. Mining rights Mining rights are mainly amortized by the unit-of-production method. Other Other intangible assets are mainly amortized by the straight-line method. Software for internal use is amortized by the straight-line method over 5 years. (c) Leased assets Leased assets for financing lease transactions whose ownership are not to be transferred: Depreciation of these assets is calculated based on the straight-line method over the lease period assuming no residual value. 16

21 3) Basis for significant allowances (a) Allowance for doubtful accounts Allowance for doubtful accounts is provided at an amount determined based on the historical experience of bad debt with respect to ordinary receivables, plus an estimate of uncollectible amounts determined by reference to specific doubtful receivables from customers experiencing financial difficulties. (b) Allowance for recoverable accounts under production sharing Allowance for recoverable accounts under production sharing is provided for probable losses on specific investments made under production sharing contracts. (c) Allowance for investments in exploration Allowance for investments in exploration is provided for future potential losses on investments in exploration companies at an estimated amount based on the net assets of the investees. (d) Provision for exploration projects Provision for exploration projects is provided for future expenditures of consolidated subsidiaries at the exploration stage based on a schedule of investments in exploration. (e) Accrued bonuses to officers Accrued bonuses to officers are provided at the expected payment amount for the fiscal year. (f) Provision for loss on business Provision for loss on business is provided for future potential losses on crude oil and natural gas development, production and sales business individually estimated for each project. (g) Accrued special repair and maintenance Accrued special repair and maintenance are provided for planned major repair and maintenance activities on tanks in certain subsidiaries at the amounts accumulated through the next activity. 4) Accounting for retirement benefits (a) Method of attributing expected retirement benefits to proper periods When calculating retirement benefit obligations, the benefit formula method is used for attributing expected retirement benefits to periods through March 31, Because certain subsidiaries are classified as small enterprises, a simplified method (the amount which would be required to be paid if all active employees voluntarily terminated their employment as of the balance sheet date) is applied for the calculation of the retirement benefit obligation for those subsidiaries. (b) Method of recognizing for actuarial differences Actuarial gains and losses are charged or credited to income as incurred. 5) Translation of consolidated subsidiaries' significant assets and liabilities denominated in foreign currencies into yen in preparation of the consolidated financial statements Monetary assets and liabilities denominated in foreign currencies are translated into yen at the exchange rates prevailing at the balance sheet date. The resulting exchange gain or loss is credited or charged to income. The revenue and expense accounts of the overseas subsidiaries are translated into yen at the average rates of exchange during the period. The balance sheet accounts are translated into yen at the rates of exchange in effect at the balance sheet date. Translation differences are presented as a component of translation adjustments and non-controlling interests. 17

22 6) Accounting for major hedge transactions (a) Hedge accounting The special treatment is applied to the interest rate swaps that meet certain criteria. For certain equity-method affiliates, the deferred hedge accounting method is adopted. (b) Hedging instruments and hedged items Hedging instruments: Interest rate swap transactions Hedged items: Interest payments on borrowings (c) Hedging policy Derivative transactions are limited to the scope of actual demand, and the Company does not engage in speculative derivative transactions. (d) Hedge effectiveness assessment method The Company does not perform hedge effectiveness assessment of interest rate swap transactions since the special treatment is applied. 7) Amortization of Goodwill Goodwill is amortized by the straight-line method over 20 years. 8) Scope of cash and cash equivalents in consolidated statement of cash flows Cash (cash and cash equivalents) in the consolidated statement of cash flows consisted of cash on hand, cash in banks which can be withdrawn on demand, and short-term investments with a maturity of three months or less when purchased which can easily be converted to cash and are subject to little risk of change in value. 9) Other items important to the preparation of the consolidated financial statements (a) Consumption tax Transactions subject to the consumption tax are recorded at amounts exclusive of the consumption tax. (b) Recoverable accounts under production sharing Cash investments made by the Company during exploration, development and production phases under a production sharing contract are recorded as "Recoverable accounts under production sharing" so long as they are recoverable under the terms of the relevant contract. When the Company receives crude oil and natural gas in accordance with the contract, an amount corresponding to the purchase costs of the products (i.e., a cost recovery portion of the investments) is released from this account. (Changes in the Presentation) (Consolidated Statement of Income) "Loss on disposal of fixed assets", previously presented separately in other expenses, is included in "Other" since it has become less significant. As a result, 4,786 million which was recorded as "Loss on disposal of fixed assets" in other expenses on the consolidated statement of income in the previous fiscal year is reclassified as "Other". 18

23 (Consolidated Balance Sheet) *1 Major accounts included in inventories As of March 31, 2017 As of March 31, 2018 Millions of yen Millions of yen Merchandise and finished goods 6,861 8,095 Work in process Raw materials and supplies 23,759 23,934 *2 Accumulated depreciation of tangible fixed assets As of March 31, 2017 As of March 31, 2018 Accumulated depreciation of tangible fixed assets 762,321 million 825,311 million *3 The Company has the following investments in subsidiaries and affiliates. As of March 31, 2017 As of March 31, 2018 Millions of yen Millions of yen Investment securities (equities) 163, ,432 (of which investment in jointly controlled entities) (62,417) (181,935) *4 Assets provided as collateral and collateral-backed debt are as follows: Collateralized Assets As of March 31, 2017 As of March 31, 2018 Millions of yen Millions of yen Cash and deposits 222 3,763 Inventories 8,533 7,910 Land Construction in progress 1,119,049 1,245,155 Investment securities 62, ,049 Long-term loans receivable 131, ,788 Other 10,147 4,101 Total 1,331,855 1,736,911 The above is mainly related to Ichthys LNG Project Finance, and the others which pledged as collateral for liabilities of affiliates excluding the Ichthys LNG Project Finance. *5 Accumulated advanced depreciation deducted from acquisition costs of fixed assets related to contribution and others As of March 31, 2017 As of March 31, 2018 Millions of yen Millions of yen Buildings and structures 1,393 1,393 Machinery, equipment and vehicles Land

24 6 Contingent liabilities (1) The Company and its consolidated subsidiaries are contingently liable as guarantors of indebtedness of the following companies: As of March 31, 2017 As of March 31, 2018 Millions of yen Millions of yen Ichthys LNG Pty Ltd*1 562,236 Ichthys LNG Pty Ltd*1 533,241 Tangguh Trustee*2 18,997 Tangguh Trustee*2 19,982 Sakhalin Oil and Gas Development Co., Ltd. 2,046 Sakhalin Oil and Gas Development Co., Ltd. Japan Canada Oil Sands Limited 1,683 Japan Canada Oil Sands Limited 1,594 Oceanic Breeze LNG Transport S.A. 216 Oceanic Breeze LNG Transport S.A. 209 Employees (housing loans) 51 Employees (housing loans) 33 Total 585, ,998 *1 Debt for investment funds of the Ichthys LNG project. *2 Debt for investment funds of Tangguh LNG project through MI Berau B.V. and MI Berau Japan Ltd. (The aforementioned Debt for the year ended March 31, 2018 includes the amount ( 9,154 million) for the construction of Train-3, based on the Company's participating interest as the guarantor of indebtedness.) 1,938 (2) Guarantee for derivatives As of March 31, 2017 As of March 31, 2018 Ichthys LNG Pty Ltd (212) million million The aforementioned derivative transactions are utilized to hedge exchange rate fluctuation risk regarding payments of development costs for the Ichthys LNG project. The amount is valuation gain (loss) on the derivatives. (3) Completion guarantee In connection with the Ichthys LNG project financing, the Company and other project participants provide lenders with a guarantee of liabilities during the construction phase based on each participating interest in addition to collateralizing its assets. The portion guaranteed by the Company is as follows: As of March 31, 2017 As of March 31, 2018 Completion guarantee (the Company's portion) 903,862 million 857,530 million 20