INPEX CORPORATION Q2 FY2026 earnings call

Middle East Conflict Impact and Strategic Direction

• The 30% reduction in Abu Dhabi sales volume caused by the Strait of Hormuz closure has been fully offset by higher oil/LNG prices and strong performance from other diversified portfolio assets, particularly the Ichthys project.
• Global energy markets are shifting from a primary focus on efficiency to greater emphasis on energy security and resilience, which will likely lead to moderately higher long-term energy costs.
• INPEX will continue proactive investment in Abu Dhabi, and will expand its portfolio of security-positioned gas assets that do not transit the Strait of Hormuz.

Project Progress

• **Abadi LNG (Indonesia): FEED is 80% complete, on track to finish in fall 2026. EPC tendering started in July 2026. 8 million tonnes of the total 9.5 million tonnes annual LNG capacity is targeted for long-term contracts, with basic term sheets already signed for 5.9 million tonnes with supermajors (BP, Shell) and the Indonesian state gas company. The project has strong support from the Indonesian government, with a groundbreaking ceremony held in mid-2026. A final investment decision (FID) is expected in the middle of 2027.
• **Ichthys (Australia): Operations are stable, with minimal impact from recent labor contract negotiations and a short strike. A 4-year labor agreement has been signed. INPEX acquired interests in 3 blocks in the Beetaloo Basin, and pilot production has commenced to assess reserves, which could serve as the resource base for a third Ichthys LNG train.
• **Other Producing Assets: INPEX has agreed on development terms for the Bab Gas Cap project in Abu Dhabi, and has acquired producing interests in the Azerbaijan ACG field, Malaysia Sarawak Block 2E, and other assets that will deliver incremental profit contribution before Abadi starts production.
• **Clean Energy: The CCS and methanation plants are operational, with green methane already supplied to pipelines. Pre-exploration drilling is underway for the Tokyo metropolitan area CCS project.

Shareholder Return Policy

• INPEX management believes the company's stock is currently undervalued, with stock prices not reflecting steady execution of the growth strategy. For FY2026, the annual dividend per share will be 112 yen (12 yen higher year-over-year), with a 140 billion yen share buyback, for a total expected payout ratio of 53%. Management chose to prioritize share buybacks this cycle due to the perceived undervaluation of the stock.

For the first half ended June 30, 2026:

1. Crude Oil: Revenue of 694.9 billion yen, representing a decrease of 85 billion yen year-over-year. This segment accounted for approximately 71.9% of total combined crude and natural gas revenue. The decline was driven by a 30% year-over-year reduction in sales volume from Abu Dhabi operations due to the closure of the Strait of Hormuz, partially offset by higher average selling prices and a weaker yen.
2. Natural Gas: Revenue of 271.9 billion yen, representing an increase of 20.5 billion yen year-over-year. This segment accounted for approximately 28.1% of total combined crude and natural gas revenue. The increase was driven by stronger-than-expected production performance at the Ichthys project, which offset modest declines in average unit prices. The net profit attributable to owners of the parent for the first half was 263.1 billion yen, a record high for the period.

• Full year FY2026 net profit attributable to owners of the parent is guided at 510 billion yen, which would be a new record high, representing an upward revision from the prior 450 billion yen forecast. The revision accounts for a delayed normalization of Strait of Hormuz operations, now assumed to occur in October 2026 instead of July 2026. If normalization does not occur by the end of 2026, net profit would only decline by less than 10 billion yen from the current guidance.
• Full year operating cash flow is expected to exceed 1 trillion yen, with investment cash flow of 859 billion yen. The company expects to accumulate 770 billion yen in cash reserves for the Abadi project by the end of FY2026, one year ahead of the original schedule.
• ROE is expected to exceed 10% in FY2026, meeting the long-term target. Long-term, after Abadi reaches production, INPEX targets total production of 800,000 BOE/d and annual operating cash flow of 1.5 trillion yen by 2035, maintaining steady production and cash flow growth over the next decade.

• Sustained closure of the Strait of Hormuz would continue to constrain Abu Dhabi sales volume, though the financial impact is expected to remain small, with diversified portfolio assets offsetting most losses.
• The Abadi project faces two key hurdles: finalization of project costs after inflation, and negotiations for fiscal incentives with the Indonesian government. Cost increases of 30-40% from the 2018 estimate are expected and not seen as a surprise, but final costs will not be confirmed until FEED and EPC tendering are complete.
• In Australia, there is ongoing discussion of introducing a domestic gas reservation policy that would require diverting 20% of LNG exports to the domestic market. This would create domestic oversupply, lower domestic gas prices, and create financial losses for LNG exporters, and INPEX has raised concerns about this policy with the Australian government. There are also additional discussions of increasing taxes on foreign energy companies that could hurt profitability.
• Higher long-term energy infrastructure costs associated with the global shift toward greater energy security could pressure project margins.

Q: What are the biggest hurdles to achieving mid-teens equity IRR for the Abadi project, and is the 770 billion yen cash reserve sufficient to cover the upstream investment?

A: The two main hurdles are achieving sufficient cost reductions through ongoing negotiations with contractors and then securing appropriate fiscal incentives from the Indonesian government if project economics still need improvement after cost cuts. Total project CapEx will not be finalized until FEED and EPC tendering are complete, and the 770 billion yen reserve is not expected to cover 100% of the upstream equity portion, so additional funding efforts will be required.

Q: Will INPEX increase the share of long-term LNG contracts for Abadi beyond the planned 8 million tonnes, given strong buyer interest? And would the company consider a higher total payout ratio given the early cash reserve target?

A: INPEX plans to keep 1.5 million tonnes of LNG as a flexible buffer, and will not increase the amount of long-term contracts beyond 8 million tonnes, retaining flexibility for the business in changing market conditions. INPEX will maintain its current policy of returning 50%+ of profit to shareholders while funding growth, and the 53% payout ratio is consistent with this strategy; analyst feedback on higher payouts will be noted for future consideration.

Q: What is INPEX's view on Australian country risk, particularly around proposed domestic gas policies, and is the 53% payout ratio confident even with potential oil price volatility?

A: INPEX does have ongoing concerns about Australian policy, specifically the proposed domestic gas reservation policy that would divert 20% of exports to domestic supply, which would hurt profitability and discourage future investment. Management has communicated these concerns directly to the Australian government, which is still debating the policy. For the payout guidance, Ichthys LNG pricing is set based on oil prices from 5-6 months prior, so a large portion of full year profit is already visible at the end of Q2, and the 53% payout is achievable even with moderate volatility. The forecast already accounts for delayed Strait of Hormuz normalization, so residual downside is limited.

Q: What is the current visibility for reserves for the proposed Ichthys Train 3 from the Beetaloo Basin? Can FY2026-level earnings be maintained next fiscal year?

A: There is currently no firm reserve visibility for Beetaloo, which is only at the exploration pilot stage. Large reserve potential is expected, but the size of recoverable reserves will not be known for a couple of years. If reserves are sufficient, a third train will be developed. If current oil price and FX levels hold, INPEX expects to maintain earnings around the 500 billion yen level and sustain 10%+ ROE next fiscal year.