1605.T

Middle East Conflict and Strategic Direction

• The ongoing closure of the Strait of Hormuz has reduced INPEX's Abu Dhabi sales volume by ~30% year-over-year, as offshore crude exports must transit the strait while most onshore crude exports via the Fujairah port outside the strait.
• The negative impact of lower Abu Dhabi sales was fully offset by higher oil and LNG prices driven by the Middle East conflict and strong performance from INPEX's diversified global portfolio, resulting in a record first half profit.
• Global energy markets are shifting to prioritize energy security and resilience over just efficiency, which INPEX expects will lead to moderately higher long-term energy costs as security investments are implemented.
• INPEX will continue proactive investment in Abu Dhabi, and will expand its portfolio of energy assets that avoid critical chokepoints like the Strait of Hormuz to improve supply security.

Project Progress

• **Abadi LNG Project (Indonesia): FEED engineering is 80% complete, on track to finish in fall 2026, with EPC tenders launched in July 2026. Basic key term sheets for 8 million tonnes per annum of long-term LNG contracts have already been signed with supermajors (BP, Shell) and the Indonesian national gas company, with strong additional interest from Asian buyers driven by Middle East supply concerns. Pre-construction site work has started with strong support from the Indonesian government, and management estimates a high probability of reaching a final investment decision (FID) in mid-2027. INPEX is targeting a mid-teens equity IRR, and is actively pursuing project cost reductions while negotiating fiscal incentives with the Indonesian government.
• **Ichthys Project (Australia): Operations are stable, with a new 4-year labor agreement reached after minor strike activity that had minimal impact on cargo deliveries. INPEX has acquired interests in 3 blocks in the Beetaloo Basin, where pilot production for shale gas has commenced; successful exploration here could serve as the gas resource base for a third Ichthys LNG train. The project has delivered strong production and cash flow, with excess production volumes contributing meaningfully to first half profits.
• **Other Development Assets: INPEX continues investment in the Upper Zakum field and the new Bab Gas Cap development project in Abu Dhabi; it has also acquired producing/near-production interests in Azerbaijan, Malaysia, and Indonesia that will add annual profit contribution of several billion yen prior to Abadi's startup.
• **Low Carbon Projects: The CCS and methanation plants have entered full operation, with green methane already supplied to domestic pipelines. Site exploration for the Tokyo metropolitan CCS project is ongoing.

Shareholder Return Policy

• INPEX will pay a full-year dividend of 112 yen per share, 12 yen higher than last year, representing an all-time high dividend. It will also conduct 140 billion yen in share repurchases, bringing the total expected payout ratio to 53%.
• Management believes INPEX stock is currently undervalued, as share prices have not risen in line with oil price increases and the company's steady execution of its growth strategy, so it chose to prioritize larger share buybacks this cycle to return capital to shareholders.

• Full-year FY2026 net profit guidance is set at 510 billion yen, which would be a new all-time record, with ROE expected to exceed 10%. This represents an improvement from the prior 450 billion yen guidance issued in May 2026.
• The guidance assumes normalization of Strait of Hormuz operations in October 2026. If normalization is delayed until after the end of the calendar year, full-year net profit would only decline by less than 10 billion yen, assuming no change to oil prices.
• Full-year operating cash flow is expected to reach ~1 trillion yen, while investment cash flow is projected at 859 billion yen. 770 billion yen in cash reserves for Abadi project development is expected to be accumulated by the end of FY2026, one year ahead of the original schedule.
• INPEX projects total production will grow from 730,000 BOE/d currently to 800,000 BOE/d after Abadi starts production, with annual operating cash flow growing to 1.5 trillion yen by 2035, maintaining steady long-term growth.
• Upper Zakum production is targeted to increase from 4 million barrels per day to 5 million barrels per day by 2026-2027, with the Bab Gas Cap development targeting FID in 2026 and production start and profit contribution in 2028-2029.

For the first half of FY2026 ended June 30, 2026:

• Crude Oil: Revenue of 694.9 billion yen, representing 71.9% of total first half revenue. Revenue decreased by 85 billion yen year-over-year, driven by a 30% sales volume decline from INPEX's Abu Dhabi operations due to Strait of Hormuz closure. This decline was partially offset by higher average crude prices and a weaker yen.
• Natural Gas: Revenue of 271.9 billion yen, representing 28.1% of total first half revenue. Revenue increased by 20.5 billion yen year-over-year. Higher sales volume from strong Ichthys project performance added 8.5 billion yen in revenue, while the impact of lower unit prices was offset by foreign exchange effects from the weaker yen. Overall, net profit attributable to owners of the parent reached a record 263.1 billion yen for the first half, despite the crude revenue decline, due to strong positive contributions from the Ichthys project and a significant reduction in income tax expenses related to the lower Abu Dhabi taxable income.

• Persistent closure of the Strait of Hormuz would continue to constrain Abu Dhabi sales volumes, though management estimates the financial impact would be modest if oil prices remain stable.
• The Abadi project faces two key risks: potential higher-than-expected construction cost inflation, and failure to reach mutually agreeable fiscal incentive terms with the Indonesian government, both of which could impact the project's planned equity IRR. The final total project capital expenditure is still uncertain pending completion of FEED and EPC tender processes.
• Australia has ongoing discussions to implement a domestic gas reservation policy that would require diverting 20% of LNG export volumes to the domestic market. This would create domestic oversupply, push down domestic gas prices, and create challenges for INPEX's business, while also signaling potential broader business environment deterioration in Australia that increases country risk.
• Global energy security investments are expected to increase long-term industry costs, which could pressure project margins if energy prices do not rise correspondingly.
• Foreign exchange and oil price volatility create significant swings in unrealized gains and losses on INPEX's large 8 trillion yen balance sheet under IFRS accounting rules, leading to potential earnings volatility.

Q: The Abadi project is progressing well, with strong marketing interest. What is the biggest hurdle to hitting the target mid-teens equity IRR, and is the 770 billion yen cash reserve sufficient for the upstream investment requirement? / A: Management identifies two core hurdles: first, achieving aggressive cost reduction through ongoing negotiations with contractors, which is a continuous process. Second, securing appropriate fiscal incentives from the Indonesian government if project economics do not meet targets after cost cuts. The 770 billion yen cash reserve was built one year ahead of schedule, but the final total upstream capital requirement depends on the final project cost, which is still being determined through FEED and EPC processes, so it is too early to confirm if the reserve is fully sufficient. Additional funding will likely be required.

Q: INPEX already has strong interest for Abadi long-term contracts; will the company increase the amount of LNG sold under long-term fixed volume contracts beyond the planned 8 million tonnes? / A: It would be fully possible to increase the volume of long-term contracts given current strong market interest, but INPEX will stick to its original policy of keeping ~1.5 million tonnes of LNG as a flexible buffer. The Ichthys project uses 90% long-term contracting which supported financing, but the buffer at Abadi provides operational and commercial flexibility that the company values, so no increase to long-term volumes is planned.

Q: What is INPEX's view on Australian country risk, especially related to rising nationalism and new domestic gas supply requirements? / A: Management confirms that there are legitimate concerns. Australia is currently discussing a mandatory 20% domestic gas reservation policy for LNG exports to address domestic gas shortages on the East Coast. INPEX has communicated to the government that this policy would create domestic oversupply, crash domestic prices, and discourage future investment, rather than solving the core issue of underproduction. While discussions are still ongoing within the Australian government, the risk of a deteriorating business environment for foreign investors is a real concern that the company is monitoring closely.