Dialogue: Senior Executive Vice President, Corporate Strategy & Planning and Executive Vice President, Finance & Accounting

Shinya The most recent share price movements reflect the surge in crude oil prices driven by the situation in the Middle East, but the rise seen in 2025 can be attributed to management’s commitment to the share price and corporate value. What was particularly striking was how the Company clearly articulated its policy on capital allocation, including shareholder returns, strengthening its messaging to the stock market and investors about what it intended to deliver.

Shinya On capital efficiency, partly because controlling equity is not straightforward, a gap remains when INPEX’s ROE is compared against the global majors. What do you think about improving capital efficiency through balance sheet management while still making the strategic investments necessary to realize sustained growth?

Yamada A direct measure to raise ROE is to reduce equity while increasing returns. However, given our current situation, with major investment in the Abadi LNG Project ahead of us, I do not believe it is a high priority to adopt a capital strategy that applies leverage in a simplistic manner through aggressive share buybacks to reduce our current equity exceeding 4.7 trillion yen. On the returns side, our profits have been recovering steadily since 2020, when they were impacted by the slump in oil prices. The contribution from the launch of the Ichthys LNG Project has been significant, and I believe that the “strength of our business” has put us on a firm footing.

Beyond that, we also need to further expand what I would call our “intrinsic earning power,” namely our ability to generate profits in a sustained and stable manner. To do that, in addition to the strength of our business, I believe we need to unlock the latent potential of our balance sheet that exceeds 7 trillion yen. We adopted International Financial Reporting Standards (IFRS) in 2023, and these are based on an “asset and liability approach” under which profit or loss is measured as the change in net assets, which are assets less liabilities. In other words, the approach calls for us to first produce our “ideal balance sheet,” and then derive our “ideal profit and loss statement” from the gap between that ideal and our current balance sheet. Our balance sheet comprises project assets deployed across the globe, and the unrealized financial and tax gains and losses embedded in it fluctuate dramatically from day to day in response to market conditions, as measured by exchange rates, interest rates, and oil prices. I recognize that my responsibility as the head of finance and accounting is to disclose to investors and creditors our “intrinsic earning power,” or in other words, our “ideal profit and loss statement,” by flexibly combining these unrealized gains and losses through appropriate asset and liability management in accordance with accounting standards.

A recent example is what we call “TA recycling,” the reclassification of translation adjustments (TA) on foreign operations, which had previously been recorded in equity as “other comprehensive income,” into profit in the profit and loss statement. TA recycling is not a one-off item but a recurring contributor to earnings growth, and I believe it has made a meaningful contribution to enhancing our corporate value through balance sheet control.

Shinya So balance sheet management generates “intrinsic earning power” from within the balance sheet itself, which in turn contributes to greater confidence in the quality of earnings.

Shinya You mentioned investor meetings a little while ago. In dialogue with overseas investors in particular, I would imagine growth strategy questions figure prominently. Hearing those questions, what do you think investors feel about the feasibility of the Abadi as the next growth driver, and about the near- and medium- term growth strategy as a prelude to that?

Takimoto With the Abadi, we are currently aiming to start production in the early 2030s. We entered the front end engineering design (FEED) phase in August 2025, and some investors have told us they can now see concrete progress with the project. As we work toward a final investment decision (FID) in 2027, we are steadily moving forward with environmental impact assessments, marketing activities, and financing discussions, and our entire organization is treating this as an opportunity for a significant step-up in corporate value, succeeding the momentum of the Ichthys.

We are also increasingly being asked by stakeholders about our near- and medium-term growth strategy for the period leading up to the start of Abadi.
There is still much we are not in a position to disclose on this front, but we believe it is necessary to pursue our growth strategy for the period leading up to production, in parallel with ensuring stable funding for Abadi’s development. For example, we think it’s important for enhancing corporate value to continue making growth investments by acquiring new assets and pursuing M&A in the natural gas/LNG business and in power-related fields, where demand growth continues to be expected, while maintaining a balance between investment discipline and investment efficiency. Once these initiatives take concrete shape, we intend to communicate their strategic rationale and future outlook to investors both at home and abroad.

We also believe that it is important to pursue realistic approaches to fulfilling our social responsibility to provide a stable supply of energy while contributing to a sustainable society, including through energy decarbonization. Given the business environment over the next 10 to 15 years, namely expanding demand for natural gas, LNG, electricity, and overall energy, we see importance in pursuing business strategies that simultaneously deliver stable supply and decarbonization, such as converting coal-fired power plants to natural gas, and over the medium to long term, introducing CCS and transitioning to hydrogen and ammonia as fuels. By communicating such initiatives carefully and clearly, we also feel that it is important for our business activities and growth strategy to be firmly understood by all of our stakeholders.

On a related note, we are sometimes compared to international oil companies (IOCs) such as ExxonMobil and Shell on growth metrics such as ROE, PBR, and PER, and told that “INPEX still has some way to go.” But personally, I am not entirely comfortable with using the same yardsticks for comparing INPEX and the IOCs. The IOCs are long-established, mature companies that have possessed major oil fields around the world since the early 20th century, whereas INPEX is a growing energy development company, as it’s only been eight years since production started at Ichthys. We are in the process of continuing investments and moving forward step by step as a growth company, including bringing Abadi toward full operation. I would ask investors not to compare INPEX with the IOCs, but to assess us with a view to what the Company will look like in the not-too-distant future. To meet investors’ expectations, we intend to utilize our balance sheet to invest in Abadi and other high-potential projects capable of generating robust cash flow.

Shinya What kind of discussions take place among the management team, and how are decisions reached, when it comes to investing in major projects or block acquisitions?

Yamada The management team makes investment decisions based on various considerations, including (1) the significance of the investment, specifically, whether it can contribute to Japan’s stable energy supply, (2) investment returns, such as whether it can generate cash flow that contributes to enhancing corporate value, (3) the appropriateness of the investment scale, namely whether it can be absorbed by our balance sheet, or conversely, whether the returns would be too small relative to the effort involved, and (4) whether it can contribute to innovation in our future business foundation, or in other words, whether it has value as a seed for the future. We do not make mechanical judgments, as the weighting of each factor naturally varies depending on market conditions, our financial position, and our long-term strategy.

Takimoto Our industry requires a degree of risk-taking, and in projects that begin with exploration, we are, by definition, taking on the risk of whether oil or natural gas can even be found. And the probability of success is by no means high. Raising that probability of success, efficiently developing oil and gas fields that have been discovered, and figuring out how to build the Company’s business portfolio—that, one might say, is the real essence of our business. Looking back at our history, it’s clear that our current profitable business portfolio was built through the development of oil and gas fields discovered via exploration, as well as the acquisition of production assets. In that sense, the risk-reward relationship is the primary consideration in the deliberations leading up to investment decisions. One further point on risk is that our business must consider country risk, which by its nature is beyond our control.

Since the core of our current business is upstream resource development,a certain level of risk-taking is unavoidable. That makes it all the more important to ensure that when things go well, we capture the returns properly.

Shinya Turning the question around from investment decisions, how does the management team approach decisions about withdrawing from projects, halting them, or divesting assets?

Takimoto New projects can be pursued with very high motivation, but withdrawal, termination, and divestment are by nature defensive decisions, so efficiency is the paramount consideration. In our Mid-term Business Plan announced in 2022, we set the aim of achieving “selection and concentration” in our business, articulating a strategy to focus our investment, development, and production activities on five core business regions, thereby consolidating previously dispersed management resources. This portfolio management approach has generated synergies and economic benefits within each region and enabled us to deploy our knowledge more effectively. In anticipation of such improvement effects and the emergence of knowledge-based strengths, we have carried out divestments of lower-efficiency projects, and as a result, our current portfolio is considerably lean. Going forward, as I have described, we see a need to expand the portfolio in line with our growth strategy.

Yamada As Mr. Takimoto said, the quality of our investment and divestment decisions is critical. Speaking generally, in the energy development industry, the size of the balance sheet, namely the scale of capital capacity, tends to correlate with earning power and corporate value. It is therefore important not to allow divestment to lead to a shrinking equilibrium, but rather to redeploy the cash generated through divestment into new investments. Precisely as Mr. Takimoto noted, skill in portfolio management is indispensable from the perspective of enhancing corporate value.

Shinya Finally, I would like to ask about human resources. What are the key management challenges INPEX faces in this area as a company that operates globally, and how are you approaching human resource development from the perspective of strengthening your management foundation?

Takimoto As I mentioned earlier, our employees are an important group of stakeholders, and we view securing and developing talented people, and ensuring that those people carry out their work with high levels of engagement, as vital for realizing our growth strategy. We need people who are motivated by the belief that energy resource development is a large-scale and genuinely exciting field, and who can share in our most important mission of securing stable sources of energy. While some assignments will be in regions with challenging business environments or high-hardship countries, we are convinced that personnel who can persevere amid such conditions and patiently negotiate with joint venture partners, regulatory authorities, and others to deliver project success are precisely those who will underpin the Company’s sustained growth.

The recruitment environment in recent years has remained a seller’s market against the backdrop of labor shortages driven by a declining and aging population, making it increasingly difficult to secure talented human resources year after year. In light of this situation, in 2025 we introduced a corporate branding initiative, launching an advertising campaign built around the brand message “Energy for a brighter future,” so we are working to actively attract individuals interested in joining us. Another aim is to broaden awareness, not just among job seekers but also among the rest of the general public, of what INPEX does and how we contribute to Japan. With this as a starting point, we hope to spark interest in the appeal and excitement of energy development, and ultimately build a company that draws in a wide range of people.

On the talent development side, we place a strong emphasis on learning through hands-on field experience. Exposure to development work both in Japan and overseas from an early stage, as part of training, is indispensable for gaining an overall and deep understanding of our business. As a company still on a growth trajectory, we are in a position to give people the opportunity to gain experience across a variety of departments.