IPXHF

Geopolitical and Energy Market Context

• Ongoing Middle East conflict has restricted crude oil sales from INPEX's Abu Dhabi offshore operations (which require transit through the Strait of Hormuz), leading to a ~30% year-over-year sales volume reduction for the region, with normalization expected around October 2025
• The global energy system is shifting to greater emphasis on energy security and resilience alongside efficiency, which will moderately increase long-term energy costs as security investments are implemented
• INPEX's diversified production portfolio (Australia, Asia, Europe, domestic Japan, alongside Abu Dhabi) offset the Abu Dhabi sales reduction, with higher global oil prices and strong performance from other projects leading to a record first half profit
• INPEX will continue investing in Abu Dhabi (which retains long-term competitiveness) and expand its portfolio of higher-security gas assets that do not require transit through chokepoints like the Strait of Hormuz

Key Project Progress

• Abadi LNG (Indonesia): FEED engineering is 80% complete, on track to finish in fall 2025; EPC construction tendering launched in July 2025. The project targets 9.5 million tons per year of LNG production, with ~8 million tons planned for long-term contracts. Basic term sheets for 5.9 million tons of long-term volume have already been signed with supermajors (BP, Shell) and Indonesia's national gas company, with strong interest from Asian buyers driven by the Middle East conflict. A groundbreaking ceremony was held recently with full support from the Indonesian government, and management sees a high probability of reaching a final investment decision (FID) in mid-2026.
• Ictis (Australia): Operations are steady; a recent labor strike over enterprise agreement negotiations had minimal impact on cargo volumes, and a new four-year labor contract has been signed. INPEX has acquired three exploration blocks in the highly prospective Beetaloo Basin, with pilot production starting in June 2025; the project is expected to provide a gas base for a potential third LNG train at Ictis, with strong support from the Australian government.
• Other growth assets: INPEX has recently acquired interests in producing and near-production assets in Azerbaijan (Caspian Sea), Malaysia, and Indonesia, which are expected to contribute several billion yen in annual profit starting before Abadi comes online. Abu Dhabi's Upper Zakum expansion and Bab gas cap development are progressing, with production increases and profit contribution expected starting in the late 2020s. CCS projects are progressing, with full-scale execution underway and exploration to confirm storage capacity in the Tokyo metropolitan area underway.

Shareholder Return Policy

• For full-year FI2026, INPEX targets a 112 yen per share dividend (12 yen higher than last year, an all-time high) and a 140 billion yen share buyback, for a total payout ratio of ~53%
• Management believes INPEX's current share price is undervalued relative to the company's steady growth execution and current oil price levels, so the company chose to prioritize larger share buybacks this cycle to deliver value to shareholders

Financial Performance

• The first half of FI2026 delivered a record net profit of 263.1 billion yen. Negative impacts from lower Abu Dhabi sales volume were more than offset by higher oil and LNG prices, a weaker yen, strong Ictis performance, and a reduction in taxable income that lowered income tax expense.

• Full-year FI2026 net profit guidance is set at 510 billion yen, which would be a new all-time record profit, representing a 10 billion yen improvement from the prior May forecast
• The guidance assumes Strait of Hormuz transit normalization in October 2025; if normalization is delayed beyond the end of the calendar year, net profit would only decline by 77 billion to 88 billion yen, leaving full-year profit well above 500 billion yen
• Operating cash flow guidance is more than 1 trillion yen; investment cash flow guidance is 859 billion yen, which includes 200 billion yen in additional cash reserves for Abadi development
• INPEX now expects to accumulate 770 billion yen in cash reserves for Abadi development by the end of FI2026, one year ahead of the original mid-term plan schedule
• ROE is expected to exceed 10% in full-year FI2026
• Management projects long-term growth: production volume is expected to reach 800,000 BOD after Abadi starts production, up from the current 330,000 BOD, and operating cash flow is expected to grow from 1 trillion yen to 1.5 trillion yen by 2035

For the first half of FI2026: 1. Crude Oil segment: Revenue of 694.9 billion yen, representing 71.9% of total combined crude and natural gas revenue. This represents an 85 billion yen decrease from the prior year first half, driven by reduced sales volume from INPEX's Abu Dhabi operations due to Strait of Hormuz disruptions, partially offset by higher average unit prices and a weaker yen. 2. Natural Gas segment: Revenue of 271.9 billion yen, representing 28.1% of total combined crude and natural gas revenue. This represents a 20.5 billion yen increase from the prior year first half, driven by strong operating performance at the Ictis project in Australia that increased sales volume, with average unit prices remaining essentially flat overall.

• A prolonged delay in normalization of Strait of Hormuz transit would lead to a moderate 77 billion to 88 billion yen reduction in full-year FI2026 net profit
• The Abadi project faces two key hurdles: achieving sufficient cost reductions during FEED and contracting to offset post-2018 inflation, and securing mutually agreeable fiscal incentives from the Indonesian government. Project capex could increase 30-40% from the 2018 estimate, with the final number not yet confirmed
• Australia is currently debating a domestic gas reservation policy that would require 20% of LNG exports to be diverted to the domestic market. If implemented, this would cause domestic oversupply, plummet domestic gas prices, and hurt profitability of INPEX's Australian operations, while also discouraging future investment in Australian gas development. There is also ongoing discussion of increasing taxes on foreign energy companies, which could deteriorate the business environment
• Achieving the Abadi project's 15% target equity IRR depends on final cost outcomes and government negotiations, with final project economics not yet confirmed
• The Ictis third LNG train depends on successful exploration to confirm sufficient gas reserves in the Beetaloo Basin, with no guarantee of sizable reserves at this stage
• Long-term energy security investments will increase overall industry costs, which could put pressure on margins if prices do not adjust accordingly

Q: What is the biggest hurdle to achieving Abadi's mid-teens equity IRR target, and is the 770 billion yen cash reserve sufficient to cover INPEX's upstream equity share? / A: The two key hurdles are achieving sufficient project cost reduction through ongoing contractor negotiations (the primary priority) and securing fiscal incentives from the Indonesian government if cost reductions alone do not deliver target economics. While 770 billion yen has been reserved for upstream capex, the final total project capex will not be confirmed until FEED and EPC tendering are complete. Even a 30-40% cost increase from the 2018 $20 billion estimate would not be a surprise, and INPEX will likely need additional funds beyond the current reserve.

Q: What is INPEX's plan for long-term vs spot LNG contracts for Abadi, and will the company consider a larger shareholder return than the current 53% payout ratio? / A: INPEX could sign more long-term contracts than the planned 8 million tons given the strong current buyer interest, but the company will not do so because it intends to keep 1.5 million tons as a buffer to maintain operational flexibility, consistent with its original project policy. Management will take the request for higher returns under consideration, but its current policy is to balance steady growth with consistent shareholder returns, targeting a 50%+ total payout ratio which is met by the current 53% forecast.

Q: What is INPEX's view on Australian country risk for the Ictis project, and do you have confidence in the 510 billion yen full-year net profit forecast even with oil price volatility? / A: INPEX does have concerns about the shifting business environment in Australia. There is active discussion of a 20% domestic gas reservation mandate for LNG exports, which INPEX argues would cause domestic oversupply, hurt profitability, and discourage future investment rather than solving the east coast gas shortage. Management is communicating these concerns directly to the Australian government, but policy risk remains. For the full-year profit forecast, a large portion of the year's profit is already locked in: Ictis LNG contract prices are set based on oil prices from 5-6 months prior, so prices through December are already mostly fixed, giving management high visibility for the full-year result.

Q: What is the visibility for Ictis Train 3, and will next fiscal year's earnings see a negative rebound from this year's one-off positive factors? / A: There is no high visibility for Train 3 at this stage. While the Beetaloo Basin is thought to hold very large gas reserves comparable to the US Permian, reserve confirmation depends on the results of exploration over the next two years, and the project will only move forward if sufficient reserves are confirmed. If oil prices and exchange rates remain near current levels (~160 yen to the dollar), INPEX expects to maintain a similar earnings level to the current year's 500 billion yen, and can sustain 10%+ ROE if no major negative events occur.