INPEX CORPORATION Q4 FY2024 earnings call

• Updated Strategic Vision (INPEX Vision 2035)

  • Identified three key industry environmental shifts: growing long-term importance of natural gas/LNG as a transition energy amid balancing energy security, affordability and decarbonization; need for diverse low-carbon solutions tailored to regional development stages; rising demand for clean electricity driven by AI and data center growth.
  • Set the "60-60" 2035 target: 60% expansion in operating cash flow from current levels, and 60% reduction in greenhouse gas emission intensity; targets 10%+ ROE and ROIC by 2035, and aims to contribute 8.2 million tons of annual CO2 reductions for third parties via CCS and renewable energy.
  • Three core growth axes:
    1. Expand natural gas/LNG business: Target Abadi FID during the 2025-2027 mid-term plan, start operations in the early 2030s; target Ichthys 3rd train start in the early 2030s, and aim for Ichthys CCS FID within the mid-term plan.
    2. Deliver CCS/hydrogen-focused low-carbon solutions: Complete the 700 tons/year blue hydrogen demonstration plant in Kashiwazaki, Niigata by August 2025; advance Ichthys and Abadi CCS projects, and develop the Tokyo Metropolitan Area CCS project to collect CO2 from the Keiyo industrial complex for offshore sequestration; pursue commercial blue hydrogen/ammonia projects based on demonstration results.
    3. New INPEX-exclusive energy and resource ventures: Scale up profitable renewable energy (over 600MW currently operating) to 3x current size by the 2030s, developing combined renewables-storage balancing business; explore combined gas supply-power generation-CCS for data center clean power supply (via partnership with Hokuriku Electric Power); expand iodine production and explore brine-extracted minerals (lithium) leveraging existing underground resource expertise.

• 2025-2027 Mid-Term Plan Updates

  • Shifted strategic priority from debt repayment to balanced growth and shareholder returns: after repaying 1.3 trillion yen of debt in the prior 3-year plan (vs. the original 500 billion yen target), leverage is now 0.3x D/E, and management will maintain D/E between 0.3-0.5 to support growth and returns.
  • Introduced progressive dividends with a 90 yen per share annual floor (up from 86 yen in 2024), targets total payout ratio of 50% or higher (up from 40%+ in the prior plan).
  • Allocates 1.8 trillion yen to total investment over 3 years (average 600 billion yen annually) and 400 billion yen to shareholder returns, based on assumptions of $70/bbl Brent and 135 yen/USD, with 2.3% annual inflation incorporated.
  • Targets zero major accidents, 35% GHG emission intensity reduction (vs. 2019) by 2027, and ROIC/ROE above WACC/equity cost respectively.
  • Focuses on improving capital efficiency to close the gap with international supermajors, via strict project selection, leverage utilization and balanced return of capital to shareholders.

INPEX operates two core product segments for the 2024 December fiscal year: 1) Crude: Total revenue of 1.712 trillion yen, which accounts for approximately 76.5% of total revenue. This represents a year-over-year increase of more than 100 billion yen from 1.6 trillion yen in 2023; the sales volume saw a slight increase, and yen depreciation offset the impact of lower Brent crude selling prices. 2) Natural Gas: Total revenue of 525.1 billion yen, which accounts for approximately 23.5% of total revenue. Revenue was roughly flat year-over-year; yen depreciation offset lower selling prices caused by market price declines, and strong performance from the Prelude project offset sales volume losses from Ichthys production issues. By segment ROIC: Ichthys ROIC decreased due to planned shutdown impacts, while overseas oil and gas ROIC fell from 15% to 9% due to the expiration of prior year tax effects.

• 2025 December Fiscal Year Guidance: Forecasts net profit attributable to parent shareholders of 330 billion yen (down 97.3 billion yen from 2024), which would be the 3rd highest profit in company history and mark 4 consecutive years of profit above 300 billion yen if achieved. Assumes $75/bbl Brent crude and 153 yen/USD; forecasts ROIC of 6.3% (above WACC) and ROE of ~7% (below current estimated 8.2% equity cost).
  • Operating cash flow is forecast at 876 billion yen (down from 899.9 billion yen in 2024) due to the Ichthys planned shutdown; growth investment is budgeted at 602 billion yen, with free cash flow of 253 billion yen.
  • Long-term guidance: Expects operating cash flow to reach 1.5-1.6 trillion yen by 2035, representing a 60% increase from 2024 levels, which management describes as a reasonable moderate target after accounting for project scalability and potential M&A.
  • Reaffirms commitment to maintaining shareholder returns even during the peak investment period for Abadi and Ichthys expansion from 2028-2030, managing leverage within the 0.3-0.5 D/E range to avoid cutting returns.

• Project cost inflation: Global engineering, procurement and construction (EPC) costs have risen sharply, with many projects coming in 30-40% above original budgets; INPEX will not finalize Abadi project costs until the FEED design process is complete, creating uncertainty about total investment.
  • Regulatory and financing constraints for Abadi: Indonesian regulations prevent project finance lending for upstream Abadi assets due to World Bank negative pledges, requiring upstream investment to be funded with internal cash rather than leverage.
  • Commodity price sensitivity: A $1/bbl change in crude price impacts annual profit by 5.4 billion yen, and a 1 yen/USD change in exchange rate impacts annual profit by 2.4 billion yen; lower-than-assumed crude prices will reduce profit and ROE.
  • ROE growth challenge: Large existing equity capital (4.8 trillion yen, including 1 trillion yen in foreign currency translation adjustments) makes it challenging to hit ROE targets above 8%, even with stable profit.
  • Project execution risk: Timing and cost of large-scale new projects (Abadi, Ichthys CCS, third train) are subject to regulatory, contractor and market risks that could delay targets or increase costs.

Q: Will shareholder returns remain at current levels even when large-scale investment for Abadi and Ichthys expansion ramps up after the current mid-term plan? What is the breakdown of the 1.8 trillion yen 3-year investment budget, and is the 60% 2035 operating cash flow growth target conservative? / A: Management confirms the illustrative slide showing steady returns during peak investment is intentional, and commits to maintaining the current return policy while keeping D/E within 0.3-0.5, with gradual debt repayment starting after 2034. For 2025, 600 billion yen total growth investment includes 540-550 billion yen for oil and gas (over 100 billion yen for Middle East production expansion, ~200 billion yen for upstream M&A/new development investment), and nearly 100 billion yen for net-zero initiatives including R&D for CCS. The 60% growth target translates to 1.5-1.6 trillion yen operating cash flow by 2035, which management views as a reasonable moderate estimate after accounting for Ichthys/Abadi scale and potential incremental projects.

Q: What is the total investment size for the Abadi project, and what is the financing plan? / A: Management notes industry estimates of 200 billion dollars 100% base are unconfirmed, and FEED design work starting in mid-2025 will clarify actual costs amid widespread industry cost inflation. For financing, downstream LNG facilities will use external borrowing via trustee borrowing, while upstream development will be funded with accumulated internal cash (INPEX already holds ~200 billion yen in reserved cash for Abadi, and will gradually accumulate more over time). Project finance is not available for upstream Indonesian assets due to regulatory constraints, so upstream will rely on internal cash.

Q: How was the 90 yen starting progressive dividend and 50%+ payout ratio determined, and what explains the 26.5 billion yen 2024 profit upside versus prior estimates? / A: The 50%+ payout ratio was set to signal the strategic shift from debt repayment to growth and returns, as actual payout already exceeded 50% in 2024. The 90 yen starting floor was chosen to signal the shift starting in 2025 even though 2025 profit is forecast to fall 100 billion yen year-over-year. The 26.5 billion yen upside mostly reflects administrative accounting adjustments (project depreciation changes) and a larger than expected 10+ billion yen reduction in corporate income tax, with the tax reduction counting as underlying core earnings improvement.

Q: How does INPEX plan to hit the 8-9% ROE target, what is the outlook for net income and equity? / A: Excluding the 80 billion yen negative impact of the Ichthys planned shutdown, 2025 underlying profit would be just over 400 billion yen, which is enough to hit 8% ROE on current equity. Management will gradually repatriate capital from the Australian Ichthys project via paid-in capital reduction over 2025-2027 to accumulate cash for Abadi and realize 26 billion yen in foreign exchange gains in 2025, boosting profit. Large-scale share buybacks to reduce equity are still under debate: INPEX's current large equity buffer is appropriate for future expansion into emerging market projects, so management will balance ROE improvement with sustainable growth.