A Firm Foundation

INPEX Holdings Inc. Annual Report 2006 1 INPEX Holdings Inc.

INPEX CORPORATION and Teikoku Oil Co., Ltd. made a new start as INPEX Holdings Inc. on April 3, 2006.

Contents

Profile & Financial Highlights ...... 2 An Interview with the President ...... 4 Worldwide Exploration & Production Activities ...... 10 Indonesia ...... 12 Australia & JPDA...... 16 Caspian Sea Area ...... 19 Middle East ...... 22 Latin America ...... 24 Africa...... 27 Japan...... 30 Corporate Governance ...... 32 Mission, Corporate Social Responsibility Policy & Health, Safety and Environment Policy ...... 34 Management Team ...... 36 Financial Section...... 37 INPEX CORPORATION...... 37 Teikoku Oil ...... 69 Operating Data & Corporate Information...... 99 Corporate Data & Stock Information ...... 109 Proved Reserves

FORWARD-LOOKING STATEMENTS This annual report includes forward-looking information that reflects the Company’s plans and expectations. Such forward-looking information is based on the current assumptions and beliefs of the Company in light of the information currently available to it, and involves known and unknown risks, uncertainties, and other factors. Such risks, uncertainties and other factors may cause the Company’s actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by such forward-looking information. Such risks and uncertainties include, without limitations, fluctuations in the following: • the price of and demand for crude oil and natural gas; • exchange rates; and • the costs associated with exploration, development, production and other related expenses. The Company undertakes no obligation to publicly update or revise any information in this annual report (including forward-looking information). INPEX Holdings Inc. 3

Compound Annual Growth Rate We are currently producing 380 Mboed*, and expect approximately 500 Mboed in the fiscal year ending March 31, 2011, with a high CAGR of 5.5%.

With business operations covering 72 projects in 24 countries, we boast a balanced portfolio in terms of activity area, type of contracts, operating stages and the proportion of crude oil to natural gas.

Reserve Replacement Ratio (RRR) With our success in exploration, development and asset acquisition, our three-year average RRR, indicating the increase of proved reserves, stood at a lofty 417%, an excellent result in comparison with other oil companies.

We have the largest proved reserves among Japanese companies, and our net probable reserves amount to 1,881 MMboe**, exceeding our net proved reserves. The reserve-production ratio for the proved reserves equates to 12.8 years, or 26.4 years when adding probable reserves. From this, we expect steady increases of production volume and proved reserves over the medium- to long-term.

* Mboed:thousands of barrels of oil equivalent per day **MMboe:millions of barrels of oil equivalent 2 INPEX Holdings Inc.

Profile

INPEX CORPORATION is a leading Japanese E&P company, the largest in Japan in terms of production and reserve volume. Since its establishment in 1966, INPEX CORPORATION has been steadily developing business overseas for 40 years. Consequently, it possesses highly profitable oil and gas assets in Indonesia, Oceania, the Caspian Sea and the Middle East, and has made considerable achievements on par with mid-size international oil companies.

INPEX CORPORATION

TEIKOKU OIL

Teikoku Oil Co., Ltd. is a Japanese pioneer of E&P, having been involved in energy resource development at home and overseas for 65 years since its foundation in 1941. Teikoku Oil supplies natural gas from its Minami - Nagaoka Gas Field, which has Japan’s largest gas reserves, through its gas pipeline network to the vast natural gas market of the Kanto region surrounding the Tokyo metropolitan area. Overseas, Teikoku Oil has been successful in the development of oil and gas fields in Latin America and Africa. Financial Highlights

INPEX CORPORATION INPEX CORPORATION and Subsidiaries For the fiscal years ended March 31, 2003, 2004, 2005 and 2006 Thousands of Millions of yen U.S. dollars (3) Years ended March 31, 2003 2004 2005 2006 2006

Net sales ¥ 201,533 ¥218,831 ¥478,587 ¥704,235 $5,995,020 Operating income 97,270 93,876 268,663 426,651 3,632,000 Net income 27,912 34,782 76,494 103,477 880,880 Cash flows from operating activities 51,282 44,464 131,207 218,240 1,857,836 Total assets (at period end) 338,747 525,298 779,228 972,438 8,278,182 Long-term debt (at period end) 46,865 169,307 175,604 206,537 1,758,211 Net debt (at period end)(1) (109,691) 42,297 (52,482) (89,097) (758,466) Shareholders’ equity (at period end) 253,570 278,114 411,296 504,998 4,298,953

Yen U.S. dollars

Net income per share ¥47,178.51 ¥58,838.76 ¥40,255.92 ¥53,814.47 $ 458.11 Net income per share (2) 15,726.17 19,612.92 — —— Cash dividends per share 10,000 10,000 4,000 5,500 46.82 Cash dividends per share (2) 3,333 3,333 — ——

Teikoku Oil Co., Ltd. Teikoku Oil Co., Ltd. and Consolidated Subsidiaries For the fiscal years ended December 31, 2002, 2003, 2004 and 2005 Thousands of Millions of yen U.S. dollars (4) Years ended December 31, 2002 2003 2004 2005 2005

Net sales ¥ 73,630 ¥ 78,498 ¥ 84,032 ¥100,716 $ 853,525 Operating income 7,296 8,739 13,533 21,077 178,619 Net income 5,233 6,796 9,276 15,485 131,229 Cash flows from operating activities 15,004 19,955 19,225 15,118 128,119 Total assets (at period end) 203,986 226,280 240,513 293,767 2,489,551 Long-term debt (at period end) 21,002 17,154 13,529 23,847 202,093 Net debt (at period end) (3,122) (8,267) (8,828) (2,019) (17,110) Shareholders’ equity (at period end) 135,911 156,463 165,936 197,216 1,671,322

Yen U.S. dollars

Net income per share ¥ 17.11 ¥ 22.09 ¥ 30.22 ¥ 50.61 $ 0.43 Cash dividends per share 6.0 6.0 7.5 9.0 0.08

Notes: (1) Net debt = Interest-bearing debt – Cash and cash equivalents – Restricted cash – Other debt securities with determinable market value. (2) We made a three-for-one stock split of our common stock effective May 18, 2004. The figures are the amounts after the stock split. (3) The translation of yen amounts into U.S. dollar amounts have been made at the rate of ¥117.47 = U.S.$1.00, the approximate exchange rate on March 31, 2006. (4) The translation of yen amounts into U.S. dollar amounts have been made at the rate of ¥118 = U.S.$1.00, the approximate exchange rate on December 31, 2005. 4 INPEX Holdings Inc.

An Interview with the President On November 5, 2005, INPEX CORPORATION and Teikoku Oil Co., Ltd. entered into a joint stock transfer agreement and decided to implement management integration. With these two companies as its wholly owned subsidiaries, the joint holding company INPEX Holdings Inc. was established on April 3, 2006. President Kuroda explains the purpose of this integration and the Company’s future vision.

Naoki Kuroda President INPEX Holdings Inc. 5

+Q +A Please tell us about the background Against the backdrop of global economic growth led by the United States of the business integration and China, demand for oil and natural gas has been rapidly increasing in between INPEX CORPORATION recent years. On the other hand, prices of oil and natural gas are hovering and Teikoku Oil Co., Ltd. at high levels, reflecting the historical restraint of development investment and the unstable situation in the Middle East. While competition for acquiring resources has become more intense than ever, countries such as China and India are striving to secure upstream assets in the Middle East, Africa and Latin America, and major oil companies are strengthening competitiveness through mergers and acquisitions. As both INPEX CORPORATION and Teikoku Oil target enhanced corporate value through acquisitions of overseas upstream assets, the immediate establishment of an operational foundation with global competitiveness is crucial in order to ensure sustainable growth in such a competitive global environment. Based on this recognition, INPEX CORPORATION and Teikoku Oil decided to integrate the two companies in order to build a firm position in the global market, by establishing a diversified asset portfolio, reinforcing a solid financial base, concentrating technological capabilities for resource development, and acquiring interests in promising projects. +Q +A Please tell us about the expected We expect three effects from this business integration. First, our asset effects of this integration. portfolio will become more balanced as there is no overlap between the portfolios of INPEX CORPORATION and Teikoku Oil. INPEX CORPORA-

TION has operated primarily in Asia and Oceania, the Middle East and

Caspian Sea regions, while Teikoku Oil has developed its business mainly

in Japan, Latin America and Africa. Therefore, the upstream assets of

each company are highly complementary, and will bring expansion in

operating areas and diversify country risk and foreign exchange risk. In addition, the integration will lead to reduction in business risks by a diversified combination of projects with differing risk profiles such as exploration, development and service operations. 6 INPEX Holdings Inc.

The second effect is a strengthened presence as a global company. The combined total oil and gas reserves of the two companies totaled 1,775 million barrels of oil equivalent in proved reserves as of March 31, 2006. Net production volume, which is our net economic take, was approximately 380 thousand barrels of oil equivalent per day. We will be the only company in Japan that can rival mid-size international oil companies in terms of reserves and production volume. Finally, we expect to enhance our capability and management know- how as an operator. We believe that we will greatly expand technical and operational capabilities for projects as an upstream company by managing domestic and overseas operator projects, as well as integrating advanced, practical technical capabilities with ample experience in evaluating and

acquiring promising overseas assets. As a result of integration, the new company will have a technical staff of 700. In addition, we will have the advantage of effectively utilizing and strengthening such operator capabilities and know-how as well as the technical research center to support operating activities. The expanded operator capabilities will be a stronger driving force for implementing our large-scale projects such as Ichthys in Australia and Abadi in Indonesia. +Q +A Based on these effects from The basic strategy for our business is to secure oil and gas reserves to assure integration, what are the management stable income and sustainable growth of corporate value through develop- goals in the medium term? ment, production and sales activities. Considering that reserves decline as we produce oil and gas, it is

indispensable to make new discoveries by exploration activities or to

acquire additional reserves by asset purchases in the medium and long

terms. We need to aggressively develop business to acquire promising

opportunities for assuring working interests for exploration, development

and production in highly potential oil and gas fields.

Through this business integration, we will become a leading Japanese

oil company that can be favorably compared to global oil companies around the world in terms of a balanced asset portfolio, a strong presence as a powerful global company, and high technical capabilities and management know-how as an operator. INPEX Holdings Inc. 7

Taking full advantage of this integration, we will strive for early commercial production from discovered large-scale oil and gas fields by enhanced investment for aggressive acquisition of promising oil and gas fields. Through these measures, we are aiming to boost our production volume to the level of a top global independent oil company by the late 2010s. We will make every effort to develop our business in pursuit of further enhancement of corporate value in the medium and long terms.

Strengthening International Competitiveness through Integration

Balanced Asset Portfolio Strengthened Presence Enhanced Capability as an Operator • Overseas oil and gas assets • Expanded reserves and • Consolidation of technical capabilities • Domestic natural gas assets production volume including human resources and know-how, etc. • Domestic gas pipeline network • Strengthened financial base

Production Enhancement of operating activities creating further growth equivalent to top independents

Continuous growth Production: 496,000 BOE/D

• Maintenance and reinforcement of naturalgas • Early commercialization of large-scale discovered production in the Offshore Mahakam Block, Indonesia assets such as Ichthys and Abadi • Steadypromotion of ongoingprojects • Acquisition of high-potential exploration areas • Scale expansion of the domestic natural gas business and promising oil and gas assets • Expansion of operating area

Year ending Years ending March 31, March 31, 2011 2016 – 2021 +Q +A The Ichthys Project in Australia is In 1998, we won an open bid for and acquired a working interest in the drawing attention as a Japanese WA-285-P, approximately 200 kilometers offshore of Western Australia. company-operated large-scale gas Pursuing exploration activities as an operator, we discovered an exception- field development project. Please ally promising gas and condensate structure, and named it “Ichthys.” tell us the project outline and its A total of six exploration wells have been drilled in this field, and all development plan. have resulted in the discovery of natural gas and condensate. In view of this, we anticipate ample reserves to realize a large-scale development

project. We plan to process the natural gas produced in this field and sell it

as liquefied natural gas (LNG). Initial LNG production is scheduled to be approximately six million tons annually. In addition to LNG production, approximately 100,000 barrels per day of condensate and LPG will be produced at the peak rate. 8 INPEX Holdings Inc.

We are vigorously engaging in development studies such as engineering work, field date collections, environmental impact assessment, as well as marketing activities in an effort to commence production from mid 2012. In August 2006, we agreed to transfer a portion of our interest in this project to TOTAL, a French oil company. With development technologies and expertise from taking part in a number of LNG projects worldwide, the participation of TOTAL is considered to be a major contribution to the development of Ichthys and the stable production and supply of LNG. This is a first milestone project conducted by a Japanese business enterprise from the development of gas field through production and sale of LNG as an operator. We will make maximum utilization of our enhanced capability as an operator and promote this large-scale LNG project. +Q +A Please tell us about the process The management integration schedule is based on the terms of agree- and schedule for the two companies ment reached in November 2005. The two companies gained approval to complete integration. from their shareholders at extraordinary shareholders’ meetings held on January 31, 2006. To this end, the two companies proceeded with the establishment of a joint-holding company as the first phase, and will implement the second phase of fully integrating management under the operating holding company. The first phase was completed in April 2006 with the establishment of a joint-holding company, INPEX Holdings Inc., through a stock transfer.

2005 Phase 1 (2006) Phase 2 (2008)

INPEX Teikoku Holding Company (INPEX Holdings Inc.) Operating Holding Company Stock transfer Merger

INPEX Teikoku Overseas Overseas Domestic INPEX Teikoku Operations Operations Operations

Overseas Overseas Domestic Overseas Domestic New Operations Operations Operations Operations Operations Operations

Further reorganization to realize growth strategy INPEX Holdings Inc. 9

One share of the joint-holding company’s common shares were allotted in exchange for one share of INPEX CORPORATION’s common shares, and 0.00144 of a share was allotted in exchange for one share of Teikoku Oil’s common shares. Both INPEX CORPORATION and Teikoku Oil were delisted on March 28, 2006, and the joint-holding company was listed on the First Section of the Tokyo Stock Exchange on April 3, 2006. At the present stage, the two companies remain independent, but linked by 100% investments from the joint-holding company. Nevertheless, we are facilitating mutual understanding and intelligence sharing on both managerial and working levels through management and technical committees. Furthermore, we are taking initiatives to harmonize the two companies’ basic management policies and enhance manage-

ment power to increase the new holding company’s corporate value by capitalizing on the two companies’ strengths. We are continuing with measures to take full advantage of the integration by streamlining organization, personnel exchanges, adjustment and planning of strategies in an effort to complete the second phase of the integration in two years. At that stage, the joint-holding company will become an operating holding company, making the two companies completely integrated. +Q +A What message do you have for The INPEX Holdings Group aims to become a comprehensive energy shareholders? company that can contribute to the development of the Japanese economy and the creation of an affluent society through the stable and efficient supply of core energy. Together with this, we will strive for the assurance

of reliable earnings in the medium and long terms, and sustainable growth

of corporate value through the prompt realization of business integration

and steady implementation of each project.

Moreover, in order to promote corporate social responsibility, we will

continue to improve our corporate governance and compliance structures,

taking all possible measures to ensure safety and security on the opera-

tional front, and give due consideration to the harmonious coexistence with the environment and local communities. We sincerely ask for your continuing support and understanding of the new Group’s endeavors. 10 INPEX Holdings Inc.

Worldwide Exploration & Production Activities Having no overlapping operating areas, the operations of INPEX CORPORATION and Teikoku Oil Co., Ltd. are highly complementary. INPEX CORPORATION possesses promising large-scale projects primarily in Asia and Oceania, the Middle East and the Caspian Sea regions, while Teikoku Oil undertakes stable business domestically as well as high-potential overseas operations in Latin America and Africa.

PAGE19 Caspian Sea Area • Kazakhstan: Offshore North Caspian Sea Block (Kashagan Oil Field and Others) • Azerbaijan: ACG Oil Fields • Azerbaijan-Georgia-Turkey: BTC Pipeline

PAGE 22 Middle East • United Arab Emirates: ADMA Block PAGE 27 • Iran: Azadegan Oil Field Africa • Congo: Offshore Congo Block • Egypt: West Bakr Block • Algeria: El Ouar I and II Blocks • Algeria: Ohanet Block INPEX Holdings Inc. 11

Net Production Proved Reserves

Africa 3% Asia / Oceania 46% Africa 1% Middle East 47%

Latin America 4% Latin America 1%

Japan 5% Caspian Sea Area 6%

Caspian Sea Area 7% Japan 10%

Middle East 35%

Asia / Oceania 35%

Total: 380 Mboed Total: 1,775 MMboe

Projects described in this report Our global E&P operations

PAGE 30 Japan • Minami-Nagaoka Gas Field and Others

PAGE12 Indonesia • Offshore Mahakam Block and Attaka Unit • South Natuna Sea Block B • Masela Block (Abadi) • Berau Block, Tangguh LNG Project

PAGE16 Australia & JPDA PAGE • Australia: WA-10-L and Others 24 • Australia: WA-285-P (Ichthys) • JPDA03-12, Bayu-Undan Project Latin America • Venezuela: East Guarico Unit and Sanvi-Guere Unit • Brazil: Frade Block • Mexico: Cuervito Block and Fronterizo Block 12 INPEX Holdings Inc.

Global Business Activities Indonesia

South Natuna Sea Block B

Offshore Mahakam Block and Attaka Unit

Masela Block (Abadi)

Berau Block, Tangguh LNG Project +2 +1 +4 +3 INPEX Holdings Inc. 13

+1 Offshore Mahakam Block and Attaka Unit Contract Area Venture Company (est.) Interest Owned Offshore Mahakam INPEX CORPORATION INPEX CORPORATION 50% (February 21, 1966) *TOTAL 50% Attaka Unit INPEX CORPORATION 50% *Chevron 50% *Operator

In October 1966, INPEX CORPORATION Once produced, crude oil and entered into a production sharing condensate are shipped by tanker from Bontang LNG Plants Attaka Unit contract (PSC) with the Indonesian the Santan and Senipah terminals Santan Terminal Attaka Field Badak Field government and acquired a 100% mainly to petroleum refineries and Nilam Field Tunu Field Tambora Field working interest in the Offshore power companies in Japan. Natural gas Handil Field Sisi Field Nubi Field Mahakam Block. The Attaka Unit was is mainly transported to the Bontang Senipah Terminal Bekapai Field established in April 1970, with Unocal LNG Plants, one of the largest facilities Peciko Field Balikpapan (now Chevron) holding an equal inter- of its kind in the world, and shipped to est of 50%. Soon after this, the Attaka Japan and other countries. Offshore Mahakam Block Field was discovered and the produc- The PSC was extended 20 years tion of crude oil and natural gas com- through 2017, making the Mahakam Gas field Oil field menced in 1972. INPEX farmed out Block continue to play as the profit Oil and Gas field 50% of its working interest in the center for the Group’s business. Offshore Mahakam Block to TOTAL in July 1970. This venture resulted in the successive discoveries of the Bekapai, Handil, Tambora, Tunu and Peciko Fields, all of which continue to produce crude oil and natural gas. 14 INPEX Holdings Inc.

+2 South Natuna Sea Block B Contract Area Venture Company (est.) Interest Owned South Natuna Sea Block B INPEX Natuna, Ltd. INPEX Natuna 35% (September 1, 1978) *ConocoPhillips 40% Chevron 25% *Operator In July 1977, INPEX CORPORATION markets. This pipeline commenced Natuna Sea acquired 17.5% working interest in the supply in 2001, and the following year North Belut South Natuna Sea Block B, which saw new gas sales to Malaysia from South Natuna Sea Block B Belida Kerisi includes the discovered Udang Oil Block B. Owing to these achievements, Field. In January 1994, INPEX the PSC for Block B was extended acquired additional interest in the through 2028. Block for a total of 35%. In December 2004, crude oil and Hiu Subsequent to INPEX participation, condensate production began at the Natuna Island Sembilang Belanak several new fields were discovered in Belanak Field through a floating pro- Block B, including the Hiu, Ikan Pari, duction, storage and offloading system Gas field Oil field North Belut, Belida, Sembilang, and (FPSO), one of the largest vessels in Oil and Gas field Kerisi Fields, contributing to crude oil the world. INPEX continues to engage production that has continued since in preliminary work including market- 1979. In January 1999, a sales agree- ing to prepare for LPG production. In ment was concluded to deliver gas to addition, INPEX is scheduled to com- Singapore from Block B, the neighbor- mence production from the Hiu Field ing Natuna Sea Block A and Kakap in 2006, the Kerisi Field in 2007, and Block, through the first Indonesian the North Belut Field in 2009. subsea pipeline connecting foreign INPEX Holdings Inc. 15

+3 Masela Block (Abadi) Contract Area Venture Company (est.) Interest Owned Masela INPEX Masela,Ltd. *INPEX Masela 100% (December 2, 1998)

*Operator In November 1998, INPEX CORPORA- of the Abadi structure, further raising TION won an open bid for and expectations for a substantial volume of Masela Block INDONESIA acquired a 100% working interest in gas and condensate reserves.

AUSTRALIA the Masela Block. Pursuing exploration INPEX will evaluate the reserves by activities as an operator, INPEX discov- drilling four additional appraisal wells Timor Sea Timor Sea Joint Petroleum ered the large-scale gas structure, from the end of 2006. Simultaneously, Development Area Abadi, by the first exploration well INPEX is devoting itself to development drilled in the Block in 2000. This studies for future commercialization by represented the first discovery of producing LNG as well as new tech- natural gas in the Indonesian Timor nologies including GTL (gas to liquid) Sea. Subsequently, two appraisal wells and DME (dimethyl ether, equivalent to drilled in 2002 confirmed the expanse LPG).

+4 Berau Block, Tangguh LNG Project Contract Area Venture Company (est.) Interest Owned Berau MI Berau B.V. Ml Berau B.V. 22.856% *BP 48% (August 14, 2001) Nippon Oil Exploration (Berau) 17.144% Tangguh Unit KG Breau 12.0% MI Berau 16.3% *BP 37.16% CNOOC 16.96% Nippon Oil Exploration (Berau) 12.23% KG Berau 10.00% LNG Japan 7.35% *Operator

In October 2001, MI Berau B.V., a joint supply of 7.6 million tons of LNG to Papua Province (INDONESIA) venture established by INPEX CORPO- China, South Korea and North America RATION and Mitsubishi Corporation, annually. In March 2005, the acquired approximately 22.9% interest Indonesian government approved the in the Berau Block, a hub in the development plan for the Tangguh LNG Tangguh LNG Project. MI Berau holds Project and extension of the PSC a 16.3% working interest in the through 2035. Partners of the Project Tangguh Unit, an unitized area are preparing for the drilling of produc- Kaimana Berau Block between the Berau Block, the adjoining tion wells and constructing LNG plants Wiriagar Block and the Muturi Block. with production to come on stream at Gas field Long-term sales agreements have the end of 2008. been concluded, stipulating a total 16 INPEX Holdings Inc.

Australia & JPDA

WA-10-L and Others

WA-285-P (Ichthys)

JPDA03-12, Bayu-Undan Project +3 +2 +1 INPEX Holdings Inc. 17

+1 WA-10-L and Others Contract Area Venture Company (est.) Interest Owned WA-10-L INPEX Alpha, Ltd. INPEX Alpha 20% *BHPBP 45% (February 17, 1989) ExxonMobil 35% WA-155-P (Part 1) INPEX Alpha 28.5% *BHPBP 39.999% Apache 31.501% WA-155-P (Part 2) INPEX Alpha 18.67% *Apache 81.33% WA-12-L (Deep) INPEX Alpha 18.67% *ExxonMobil 81.33% *Operator

In February 1989, INPEX CORPORA- Griffin Venture, and is transported for Indian Ocean Barrow Island TION acquired a 20% working interest sale through a 70-kilometer subsea WA-10-L Griffin in the WA-210-P in offshore Western pipeline connecting to the onshore WA-12-L WA-155-P (Part II) Australia. As a result of subsequent trunk pipeline. exploration activities, the Griffin fields In the surrounding area of WA-10-L,

WA-155-P (Part I) Onslow were discovered and a production INPEX acquired working interests in license for four blocks in WA-10-L was the WA-155-P (Part II) and WA-12-L AUSTRALIA granted by the Australian government. (deep) in July 1994, and in the Commercial production from these WA-155-P (Part I) in July 1999. The blocks commenced in January 1994. Van Gogh-Vincent and Ravensworth Oil field The produced crude oil is processed Fields were discovered in the WA- and stored at the Griffin Venture, an 155-P (Part I), and accordingly, FPSO vessel, and then shipped for sale. feasibility studies for commercial Natural gas is also processed at the development are currently under way.

+2 WA-285-P (Ichthys) Contract Area Venture Company (est.) Interest Owned WA-285-P INPEX Browse, Ltd. *INPEX Browse 76% (September 1, 1998) TOTAL 24%

*Operator After winning the open bid in August INPEX is vigorously engaging in EAST TIMOR 1998, INPEX CORPORATION acquired feasibility studies including engineering

Timor Sea a working interest in the WA-285-P in works, field data collection and envi- WA-285-P offshore Western Australia. Pursuing ronmental impact assessment, as well Darwin exploration activities as an operator, as gas marketing for commercial INPEX discovered the highly promising production of LNG. As an initial stage, gas and condensate field, Ichthys, in INPEX plans to produce and sell six AUSTRALIA 2000. All six exploratory wells that million tons of LNG per year from mid have successfully discovered natural 2012. In addition to LNG, 100,000 gas and condensate have demonstrat- barrels per day of condensate and LPG ed sufficient reserves for a large-scale will be produced at the peak rate. gas and condensate project. 18 INPEX Holdings Inc.

+3 JPDA03-12, Bayu-Undan Project Contract Area Venture Company (est.) Interest Owned JPDA03-12 INPEX Sahul, Ltd. INPEX Sahul 19.0712244% (March 30, 1993) *ConocoPhillips 46.7144238% Santos 19.2663518% Petroz 14.948% Bayu-Undan Unit INPEX Sahul 10.527682% *ConocoPhillips 48.466865% Eni 12.038906% Santos 10.635396% Tokyo Timor Sea Resources (Tokyo Electric/Tokyo Gas) 10.079568% Petroz 8.251583% *Operator

In April 1993, INPEX CORPORATION which straddles both contract areas. East Timor acquired a working interest in the In the Bayu-Undan Project, Timor Sea

Timor Sea Joint JPDA03-12, located in the Timor Sea production of condensate and LPG Petroleum Development Area Joint Petroleum Development Area commenced in 2004. As for natural

Bayu-Undan Gas-Condensate Field (JPDA). gas production, LNG sales agreements The exploration in the contract stipulating a total supply of three Subsea Gas Pipeline Darwin area resulted in the discovery of oil and million tons annually were concluded JPDA03-12 Block gas in the Elang, Kakatua, Kakatua with Tokyo Electric Power Co., Inc. and AUSTRALIA North, Bayu-Undan and Hingkip Tokyo Gas Co., Ltd. in August 2005, structures. Production began in Elang and commercial production of LNG Gas field in July 1999 and in Kakatua and commenced from February 2006. Kakatua North in the following month. In 1999, the Bayu-Undan Unit was established between JPDA03-12 and JPDA03-13 for the purpose of carrying out the development and production of the Bayu-Undan gas-condensate field, INPEX Holdings Inc. 19

Caspian Sea Area

BTC Pipeline

ACG Oil Fields

Offshore North Caspian Sea Block (Kashagan Oil Field and Others) +1 +2 +3 20 INPEX Holdings Inc.

Offshore North Caspian Sea Block +1 (Kashagan Oil Field and Others) Contract Area Venture Company (est.) Interest Owned Offshore North Caspian Sea INPEX North Caspian Sea, Ltd. INPEX North Caspian Sea 8.33% (August 6, 1998) *Eni 18.52% ExxonMobil 18.52% Shell 18.52% TOTAL 18.52% ConocoPhillips 9.26% KMG 8.33% *Operator In September 1998, INPEX CORPORA- field discoveries. The first phase of the KAZAKHSTAN TION acquired a working interest of development is currently under way with

Kashagan Kairan approximately 7.14% in the Offshore production to come on stream at the

Caspian Sea North Caspian Sea Block in the territorial end of 2008, and the production level is waters of the Republic of Kazakhstan. In expected to plateau at 1.2 million barrels September 2001, INPEX acquired per day in 2016. In addition to the Kashagan Southwest Aktote additional working interests, totaling Kashagan Oil Field, hydrocarbon Offshore North Caspian Sea Block approximately 8.33%. reserves were confirmed in four other Kalamkas The Kashagan Oil Field was discov- structures: the Kalamkas, Kashagan ered by the first exploration well drilled in Southwest, Aktote, and Kairan. INPEX September 1999, representing the first aims to increase production volume discovery in the Kazakhstan-controlled from the Offshore North Caspian Sea area of the Caspian Sea. The Kashagan Block through appraisal work for these Oil Field is considered to have great discovered and undeveloped structures potential to be one of the leading super along with the development of the giant oil fields in the history of global oil Kashagan Oil Field. +2 ACG Oil Fields Contract Area Venture Company (est.) Interest Owned ACG Oil Fields INPEX Southwest Caspian Sea, Ltd. INPEX Southwest Caspian Sea 10% *BP 34.14% (January 29, 1999) Chevron 10.28% SOCAR 10% Statoil 8.56% ExxonMobil 8% TPAO 6.75% Devon Energy 5.63% Itochu 3.92% Hess 2.72% *Operator In April 2003, INPEX CORPORATION the Deep Water Gunashli and West acquired a 10% working interest in the Chirag Fields, with the same goal for Azeri-Chirag-Gunashli Fields, known as 2008. All together, the project is AZERBAIJAN Baku ACG Fields Sangachal the ACG Oil Fields, located in the South expected to increase production in Caspian Sea area of the Republic of stages, aiming to reach a peak pro- Oil Pipeline Azerbaijan. Crude oil production began in duction level of one million barrels per Deep Water Gunashli Field Chirag Field 1997 in the Chirag Field and the Central day in 2009. Azeri Field Azeri and West Azeri Fields commenced The crude oil from these fields is Caspian Sea crude oil production in February and being transported to Supsa on the December 2005, respectively. Black Sea along a route running from Oil field Currently, INPEX is engaged in Baku, Azerbaijan, as well as to Ceyhan, development work at the East Azeri Turkey to the Mediterranean Sea via Field, with the aim of starting produc- the mainstay BTC Pipeline, which tion in November 2006, as well as at commenced operations in June 2006. INPEX Holdings Inc. 21

+3 BTC Pipeline Contract Area Venture Company (est.) Interest Owned BTC Pipeline INPEX BTC Pipeline, Ltd. INPEX BTC Pipeline 2.5% (October 16, 2002) *BP 30.1% SOCAR 25% Chevron 8.9% Statoil 8.71% TPAO 6.53% Eni 5% TOTAL 5% Itochu 3.4% ConocoPhillips 2.5% Hess 2.36% *Operator

In September 2002, INPEX CORPORA- INPEX is participating in the devel-

RUSSIA TION acquired a 2.5% interest in the opment of the ACG Oil Fields in

Caspian BTC Pipeline Project. Azerbaijan and the Kashagan Oil Field Black Sea GEORGIA Sea Tbilisi The 1,770-kilometer BTC Pipeline, in Kazakhstan, both of which are AZERBAIJAN ARMENIA Baku stretching from Baku, Azerbaijan to regarded as super giant oil fields in the TURKEY BTC Pipeline Ceyhan, Turkey, on the Mediterranean world. The completion of the BTC

Ceyhan IRAN Sea, via Tbilisi, Georgia, with a trans- Pipeline enables shipment by large-

CYPRUS SYRIA port capacity of one million barrels per scale vessels directly from the IRAQ Mediterranean Sea day, was constructed to transport Mediterranean Sea, thereby avoiding crude oil produced primarily from the the Turkish straits, which are particu- ACG Oil Fields in Azerbaijan. The BTC larly congested by shipping traffic. This Pipeline commenced full-fledged represents a major contribution to the operations in June 2006. The Ceyhan transport of the ever-growing produc- marine terminal has seven one-million tion of crude oil in Azerbaijan and barrels-capacity crude oil storage tanks Kazakhstan. and a two-kilometer jetty capable of docking two 300,000-ton-class tankers at the same time. 22 INPEX Holdings Inc.

Middle East

+2 +1

ADMA Block

Azadegan Oil Field INPEX Holdings Inc. 23

+1 ADMA Block Contract Area Venture Company (est.) Interest Owned Umm Shaif Field/Lower Zakum Field Japan Oil Development Co., Ltd. JODCO 12% ADNOC 60% (February 22, 1973) BP 14.67% TOTAL 13.33% Upper Zakum Field JODCO 12% ADNOC 60% ExxonMobil 28% Umm Al-Dalkh Field JODCO 12% ADNOC 88% Satah Field JODCO 40% ADNOC 60%

In May 2004, INPEX CORPORATION 1987, respectively. These fields have

ADMA Block made Japan Oil Development Co., Ltd. since maintained steady production. (JODCO) a wholly owned subsidiary by Crude oil production has also continued Pipeline Umm Shaif Field acquiring all the shares held by the at two existing fields, the Umm Shaif Das Island Upper Zakum/ Lower Zakum Field Japan National Oil Corporation through and Lower Zakum, since 1962 and Zirku Island a share exchange. JODCO was estab- 1967, respectively. The crude oil is Satah Field Umm Al-Dalkh Field lished in 1973 and currently produces transported by subsea pipeline to the Abu Dhabi crude oil from five fields in the ADMA islands of either Das or Zirku for ship-

UNITED ARAB EMIRATES Block, located in offshore Abu Dhabi, ment. the United Arab Emirates. Production These five fields are operated by Oil field commenced in the Upper Zakum Field, local operating venture companies, the area’s largest oil field, in 1982, and ADMA-OPCO and ZADCO. JODCO in the Umm Al-Dalkh and Satah Fields, continuously sends a number of its in which JODCO directly took part in personnel, primarily engineers, to development operations, in 1985 and those companies.

+2 Azadegan Oil Field Contract Area Venture Company (est.) Interest Owned Azadegan Oil Field Azadegan Petroleum *Azadegan Petroleum Development Development, Ltd. 75% (February 18, 2004) NICO 25% *Operator In February 2004, INPEX CORPORA- from the field is scheduled to reach

Tehran TION entered into a service contract (a 150,000 barrels per day in the first so-called “buyback contract”) with the stage. In the optional second stage, the

Baghdad National Iranian Oil Company (NIOC) for production level is expected to increase Azadegan Oil Field the integrated appraisal and develop- to 260,000 barrels per day. IRAQ Ahwaz ment operations of the Azadegan Oil IRAN Field in the Islamic Republic of Iran, Kuwait and participated in the project as an operator with a 75% working interest. Under the current plan, oil production Oil field 24 INPEX Holdings Inc.

Latin America

Cuervito Block and Fronterizo Block

East Guarico Unit and Sanvi-Guere Unit

+3 Frade Block +1

+2 INPEX Holdings Inc. 25

+1 East Guarico Unit and Sanvi-Guere Unit Contract Area Venture Company (est.) Interest Owned East Guarico Teikoku Oil de Venezuela, C.A. (September 19, 1992) *Teikoku Oil de Venezuela 100% Sanvi-Guere Teikoku Oil de Sanvi-Guere, C.A. (March 2, 1994) *Teikoku Oil de Sanvi-Guere 100%

*Operator In 1991, the Venezuelan national tion of crude oil and natural gas fields, East Guarico Unit / petroleum company (Petróleos de exploration and development activities Sanvi-Guere Unit Venezuela, S.A. [PDVSA]) announced as an operator, under the Operating

Caracas it was opening bidding to foreign Service Agreement (OSA) for each companies through international respective unit. The currently existing Georgetown tenders for work to reactivate sus- OSAs for both the East Guarico and VENEZUELA GUYANA pended oil fields and facilitate new Sanvi-Guere Units are to be altered to

Bogota petroleum exploration. Teikoku Oil a joint venture agreement in order to COLOMBIA participated in the bidding rounds and establish separate ventures for crude BRAZIL was awarded a 100% working interest oil and gas, to be run by PDVSA and in a central onshore area, the East the Company. The Company is under- Guarico Unit, in July 1992, and the going necessary procedures for this Sanvi-Guere Unit in November 1993. transition. The Company engages in the reactiva-

+2 Frade Block Contract Area Venture Company (est.) Interest Owned Frade Block Frade Japão Petróleo Limitada (FJPL) FJPL 18.2609% (July 5, 1999) *Chevron 51.7391% Petrobras 30% *Operator In July 1999, Frade Japão Petróleo The Frade Oil Field was already Campos Limitada (FJPL), a joint venture estab- discovered in 1986 and the reserves BRAZIL lished by INPEX CORPORATION and volume was evaluated by two appraisal

Macae Sojitz Corporation, acquired a 12.75% wells in 2001, immediately after Frade Block working interest in the Frade Block in INPEX’s participation in the Block. Brazil’s offshore northern Campos In June 2006, the final investment Basin. In July 2001, FJPL increased its decision was made for the develop- Atlantic Ocean working interest to 15%, and in June ment of the Frade Oil Field, and INPEX 2006, FJPL’s total working interest rose is engaging in development and pursu- to approximately 18.3% in accordance ing commercial production in 2009. with contractual agreements. This project will realize the first ever crude oil production in Brazil by a Japanese enterprise. 26 INPEX Holdings Inc.

+3 Cuervito and Fronterizo Blocks Contract Area Venture Company (est.) Interest Owned Cuervito Teikoku Oil de Burgos, S.A. de C.V. Teikoku Oil de Burgos 40% (September 9, 2003) *Peterobras 45% Diavaz 15% Fronterizo Teikoku Oil de Burgos 40% *Peterobras 45% Diavaz 15% *Operator In October 2003, Teikoku Oil won an duction operations, based on the open bid for and acquired a 40% Multiple Service Contract. This project UNITED STATES OF AMERICA working interest in the Cuervito Block represents the first entry by a Japanese in the Burgos Basin in northeastern enterprise into an oil and natural gas Mexico. The following month, Teikoku development project in Mexico. Cuervito Oil also acquired a 40% working interest in the Fronterizo Block, located next to the Cuervito Block. This natural Fronterizo gas development project fosters the MEXICO redevelopment of gas fields and pro- INPEX Holdings Inc. 27

Africa

+3,4 +2

West Bakr Block

El Ouar I and II Blocks, Ohanet Block

Offshore Congo Block +1 28 INPEX Holdings Inc.

+1 Offshore Congo Block Contract Area Venture Company (est.) Interest Owned Offshore Congo Block Teikoku Oil (D.R. Congo) Co., Ltd. Teikoku Oil (D.R. Congo) 32.28% (August 1, 1970) *Perenco 50% Chevron 17.72%

*Operator In July 1970, Teikoku Oil acquired a volume is over 200 million barrels in

Mwambe 17.03% working interest and partici- this block. The Company is engaging in Miasato pated in oil exploration and develop- stable production operations from Libwa Mibale Motoba ment in the Offshore Congo Block. existing oil fields while conducting Lukami Additional interest was acquired in July appraisal work for discovered structures. Moko Tshiala Muanda 1972, increasing Teikoku Oil’s share to Banana GCO 32.28%. The GCO Field was discov- Soyo ered in 1971, and oil production commenced in 1975. Including the GCO Field, 11 oil fields have been Oil field discovered, and cumulative production

+2 West Bakr Block Contract Area Venture Company (est.) Interest Owned West Bakr The Egyptian Petroleum *EPEDECO 100% Development Co., Ltd. (EPEDECO) (July 17, 1970) *Operator In June 1975, EPEDECO, a joint with commercial production Mediterranean Sea venture established by Teikoku Oil, commencing in 1990. Mitsui and others, acquired a 100% In July 2005, the contract term was Suez Canal Cairo working interest in the West Bakr extended through 2020 and the Block, located in a desert region on the Company maintains stable production EGYPT west bank of Egypt’s Gulf of Suez, and operations in existing oil fields while conducted exploration activities as an pursuing possibilities for increased

West Bakr operator of the project. As a result, production through additional explo- three oil fields were discovered and ration activities. commercial production has continued since 1980. In addition, a new oil field was discovered through additional exploration work conducted from 1989, INPEX Holdings Inc. 29

+3 El Ouar I and II Blocks Contract Area Venture Company (est.) Interest Owned El Ouar I Teikoku Oil Algeria Co., Ltd. Teikoku Oil Algeria 10.29% (December 21, 2001) *Sonatrach 67.33% Eni 22.38% El Ouar II Teikoku Oil Algeria 10.29% *Sonatrach 67.33% Eni 22.38% *Operator In November 2001, Teikoku Oil acquired a 10.29% working interest in the El Ouar I and II Blocks, located in Tunisia onshore eastern Algeria. The drilling of Algeria exploration wells confirmed the exis- Libya El Ouar Block tence of natural gas and condensate in El Ouar I in 1997, and in El Ouar II in 2001. Feasibility studies for commercial development of natural gas are currently under way.

+4 Ohanet Block Contract Area Venture Company (est.) Interest Owned Ohanet Japan Ohanet Oil & Gas Co., Ltd. JOOG 30% (JOOG)(March 15, 2001) *BHPP 45% Woodside 15% Petrofac 10% *Operator Teikoku Oil has jointly invested in ment project in which a Japanese JOOG with Itochu Oil Exploration Co., enterprise has participated in Algeria, Ltd. In January 2001, JOOG acquired a which boasts one of the largest natural Tunisia 30% working interest in the Ohanet gas reserves in the world. Algeria Block in southeast onshore Algeria. Libya Ohanet Based on a risk service contract, this gas field development project commenced production of natural gas, condensate and LPG in October 2003. This is the first large-scale gas develop- Oil and Gas field 30 INPEX Holdings Inc.

Japan

Extension to Shin Tokyo Line (Under Construction) Offshore Iwaki Line

Shin Tokyo Line Minami-Nagaoka Offshore Iwaki Gas Field Gas Field Shin Oumi Line (Planned) Gunma Interconnection Line Tokyo Line (Planned;Teikoku Oil and Tokyo Gas)

Matsumoto Line Ryomo Line

Kofu Line

Shizuoka Line (Under Construction) Iruma Line

Sodeshi LNG Terminal (Shizuoka Gas) Second Suruga Trunk Pipeline (Shizuoka Gas) Minamifuji Line* (Under Construction)

* Three Company Cooperative Pipeline (Teikoku Oil, Shizuoka Gas, and Tokyo Gas) INPEX Holdings Inc. 31

+ Minami-Nagaoka Gas Field and Domestic Natural Gas Business

Since its founding in 1941, Teikoku Oil Yamanashi, Nagano and Niigata increasing demand from existing supply Co., Ltd. (“Teikoku”) has promoted Prefectures, connects the Minami- areas and neighboring regions. exploration and development projects Nagaoka Gas Field with the vast natural A substantial change in the operat- for 65 years both at home and overseas. gas market of the Tokyo metropolitan ing environment in the last two years is On the domestic front, Teikoku Oil is area, supplying natural gas to over 30 the prolonged trend of escalating crude currently operating several oil and gas city gas companies and large-scale oil prices, and this has led to an accel- fields in Niigata, Akita, Chiba and industrial consumers along the pipeline. erated shift from petroleum fuels to Fukushima Prefectures, while also Natural gas is a clean form of natural gas in terms of cost competitive- handling the petroleum products busi- energy with less of an environmental ness. Teikoku has experienced strong ness. The discovery of oil and gas fields burden when burned than other types demand for natural gas primarily for in the Joetsu area of Niigata Prefecture of fuel. This drives growing demand for industrial use, particularly in the north- was a turning point, as Teikoku estab- use both as a city gas and as an indus- ern Kanto region. The annual sales lished Japan’s first long-distance and trial fuel. Anticipating this trend, target of 1,200 million cubic meters for high-pressure natural gas pipeline from Teikoku has been proactively extending fiscal 2010 will be achieved within this Niigata to Tokyo in 1962, and has since pipelines for 10 years, thereby expand- fiscal year, four years ahead of the expanded the natural gas supply for ing its natural gas supply area. Together schedule, and further rapid growth is both residential and industrial/commer- with this, Teikoku has made effective expected in the coming years. Teikoku cial consumers along the pipeline marketing efforts that leverage the cost has been strategically reducing the network. Furthermore, as an entry into a competitiveness of domestic natural price of domestic natural gas in pursuit new business field, a gas turbine power gas toward imported LNG, resulting in of maintaining competitiveness amid generation plant, which can be fueled an annual sales growth rate of 8% on the progress in deregulation. In the by either the natural gas or condensate average since 1998. context of soaring crude oil prices in produced at Teikoku’s own gas field, will Teikoku has been vigorously recent years, we will endeavor to gain start commercial operation in 2007. implementing the reinforcement of customers’ understanding of a review of The backbone of Teikoku’s natural production facilities in addition to this longstanding pricing policy. gas business is based on the Minami- enhancement of pipeline transport Under these circumstances, LNG Nagaoka Gas Field and trunk pipeline capacity, with the aim of shoring up will be supplied from a regasification network, and this has already become growth. At the Minami-Nagaoka Gas terminal along Japan’s Pacific coast the “cash engine” for the creation of Field, overall output capacity will be after 2010 to assure a supply source long-term stable profits. Discovered in boosted approximately 1.5 times by the that complements the Minami-Nagaoka 1979, the Minami- Nagaoka Gas Field, end of this fiscal year with the establish- Gas Field. Simultaneously, plans are to located southwest of Nagaoka city, ment of a new gas processing plant. In realize a stable supply and significant Niigata Prefecture, boasts the largest addition, for the purpose of effectively improvement in transport capacity, natural gas reserve in Japan. Its ratio of contending with seasonal demand striving for the continuous long-term reserves to production (R/P) well variations and short-term production growth of the domestic natural gas exceeds 30 years, even after over 20 shutdowns, Teikoku is proceeding with business. As a prospective vision, we years have passed since the com- the reinforcement of output capacity will explore a feasible plan for the mencement of production, and the from its nearby underground gas establishment of a “natural gas value proved reserve is expected to increase storage by up to 1.5 times. With the chain” that organically connects the by 10% or more, given recent success- total pipeline network reaching 1,300 natural gas business infrastructure ful technological developments. The kilometers in 2007, measures are being in Japan with the Group’s overseas trunk pipeline network encompassing considered to further reinforce this natural gas assets, aiming at further the Kanto region, along with infrastructure in order to respond to improvement of enterprise value. 32 INPEX Holdings Inc.

Corporate Governance Corporate Governance

INPEX Holdings recognizes the importance of improving the efficiency and soundness of its management and enforcing compliance in order to continue increasing corporate value and maintain the trust of its stakeholders including shareholders and society at large, and will continue to reinforce corporate governance.

Corporate Governance Structure Directors to contribute to the develop- including the interlocking directors, are Directors and Board of Directors Meeting ment of the Company’s business. The required to sign a written undertaking to The Board of Directors of INPEX Holdings four interlocking directors serve concur- carry out their duties as officers of the Inc. (the “Company”) is composed of 16 rently as directors of Japan Petroleum Company appropriately and with the members, four of whom are outside Exploration Co., Ltd., Mitsubishi highest regard for the importance of directors. The Board of Directors meets Corporation, Mitsui Oil Exploration Co., such matters as their obligations in once a month and when necessary to Ltd. and Nippon Oil Corporation (“share- connection with non-competitive prac- discuss and make decisions on impor- holder corporations”), respectively. tices under the Japanese Company tant operational matters, and oversees At the same time, however, the Code, the proper manner for dealing with the execution of operations. shareholder corporations are involved in conflict of interest, and confidentiality. Each of the four outside directors businesses that overlap with those of the (“interlocking directors”) has many years Company. The Company therefore Executive Committee of management know-how and experi- recognizes that it must pay particular The Executive Committee has been ence in the Company’s business and is attention to corporate governance to established to speed up decision- able to offer objective, professional advice avoid conflicts of interest in connection making and resolve matters that do not regarding operations. For this reason, with competition and other matters. require a decision by the Board of they were asked to join the Board of To this end, all Company directors, Directors, and to conduct discussions that facilitate the Board’s decisions.

Statutory Auditors and Board of Statutory Auditors Corporate Governance System The Company employs a statutory

Shareholders’ Meeting auditor system. The Board of Auditors is composed of four members, includ- Appoint/dismiss Appoint/dismiss Appoint/dismiss ing two from outside the Company, Independent Board of Statutory Auditors Board of Directors Auditors Statutory Auditors Audit Directors who attend meetings of the Board of Appoint/ Accounting supervise/ Appoint Directors and Executive Committee, audit Audit Accounting audit dismiss conduct interviews with departments as necessary and audit the execution of Executive Committee duties of directors with regard to overall President operations and individual projects based on reports from relevant depart- Report Compliance Committee ments and other information. Statutory Internal audit Internal Audit Unit Each Division, Each Subsidiary auditors also receive reports related to ongoing audits from the independent INPEX Holdings Inc. 33

auditors and internal audit reports from or share transfer, capital reductions and scope of the veto is limited and guide- the Internal Audit Unit. dissolution. Any appointment or removal lines have been set for the exercise of None of the statutory auditors have of directors or merger, share exchange veto rights, the special class share is an any special interests in the Company. or share transfer requires a resolution by absolute minimum necessary measure the holder of the special class share, that is highly transparent and does not Internal Audit provided 20 percent or more of the unjustly impinge on the Company’s The Internal Audit Unit was established voting rights attached to shares of ability to operate with flexibility and as an internal audit division independent common stock are held by a single efficiency. from business departments and directly non-public entity or a single non-public responsible to the president, to ensure entity and its joint shareholders. Risk Management and the appropriateness and efficiency of The Minister of Economy, Trade and Corporate Ethics business activities. The Audit Unit Industry announced in its 74th bulletin The Company recognizes that two evaluates internal control systems on a dated April 3, 2006, the establishment factors are vital to increase corporate group-wide basis. It examines and of guidelines for the exercise of the value amid drastic changes in its oper- evaluates the status of management special class shareholder’s veto rights ating environment: forestalling and bodies, the efficiency of business opera- (with respect to decisions not approved mitigating losses by properly managing tions and other matters, pinpointing by a resolution of the special class risk inherit in its business operations; problem areas, making necessary shareholder). The Minister of Economy, and maintaining and strengthening trust reports and conducting follow-up audits Trade and Industry may veto any one of with customers, investors and other to confirm the status of improvements. the aforementioned major corporate parties. As such, the Company will The Internal Audit Unit also contributes decisions only to the extent that it strive on an ongoing basis to enhance to proper operational management by determines a proposed action or trans- its risk management. exchanging opinions with independent action (1) will likely result in the Compliance is also a vital element and statutory auditors as necessary. Company being managed in a manner of continuous corporate development. inconsistent with its goal of securing a The Company will methodically develop Special Class Share and stable energy supply for Japan as a its compliance system to ensure strict Corporate Governance national flag company; (2) will likely observance of laws, regulations and The Company’s Articles of Incorporation adversely affect the goal of efficiently corporate ethics. stipulate that certain major corporate securing a stable energy supply for decisions require a resolution by the Japan as a national flag company; or Information Disclosure holder of a special class share in (3) may affect the exercise of voting The Company seeks to improve man- addition to the approval of the share- rights of the special class shareholder. agement transparency and account- holders’ meeting or Board of Directors. The exercise of veto rights by the ability by disclosing information in a The special class share is issued to the special class shareholder is, therefore, timely fashion through IR activities Minister of Economy, Trade and Industry. restricted. With the existence of this directed at shareholders and investors, Major corporate decisions include class of share, however, the Company the shareholders’ meeting, its Web site, the appointment and removal of direc- can minimize the risk of losing manage- public relations activities and in other tors, the disposition of material assets, ment control to foreign-owned concerns ways, and will constantly strive to amendments to the Articles of and an unsolicited takeover for specula- enhance these efforts. Incorporation, mergers, share exchange tive reasons. Moreover, because the 34 INPEX Holdings Inc.

Mission, Corporate Social Responsibility Policy & Health, Safety and Environment Policy

Mission The mission of INPEX Holdings Group is to provide a stable and efficient supply of energy to our customers by exploring and developing oil and natural gas resources throughout the world. Through its business, we aim to become an integrated energy company, which contributes to our community and makes it more livable and prosperous.

Corporate Social Responsibility Policy INPEX Holdings Group conducts our business efficiently and proactively with a long-term perspective. Guided by the leadership of the top management, we are committed to fulfilling our corporate social responsibilities. Our key principles include:

1. Deliver energy in a safe, efficient and reliable manner.

2. Comply with laws, rules and regulations and adhere to ethical business conducts.

3. Communicate timely and openly with shareholders, employees, customers, business partners and other stakeholders.

4. Value the individuality of our employees, secure a safe, healthy and worker-friendly environment, and provide opportunities for career development.

5. Recognize our responsibility to help preserve the environment and contribute to sustainable development.

6. Contribute to the development of our host countries and communities based on the understanding of cultural diversity. INPEX Holdings Inc. 35

Health, Safety and Environment Policy INPEX Holdings Group is a global, independent energy company and our vision is to provide a stable and efficient supply of energy to our customers. We recognize our responsibility to sustainable development and, in this regard, we aim to protect the health and safety of all those associated with our business activities and to minimize adverse impacts on the environment.

To accomplish this, we will:

• Comply with all applicable HSE laws and regulations, and apply our standards where laws and regulations do not exist or are considered insufficient.

• Implement and maintain HSE management systems, and perform regular audits of legal compliance and progress of our HSE activities to achieve continuous improvement in our HSE performance.

• Identify and assess health and safety hazards and eliminate or, if not possible, reduce risks to as low as reasonably practicable to prevent incidents.

• Conduct environmental assessments and promote efficient energy consumption to reduce adverse environmental impacts.

• Maintain and regularly test emergency plans to ensure a quick and effective response in the event of emergencies.

• Provide resources that will enable our employees to meet HSE objectives and targets.

• Provide training in HSE activities and safe driving to ensure all employees are aware of their responsibilities and accountabilities in these areas.

• Require contractors to manage HSE in accordance with this Policy, and to achieve agreed HSE targets.

• Communicate openly on HSE activities with stakeholders. 36 INPEX Holdings Inc.

Management Team

1 Representative Director and Chairman Directors (Outside) Statutory Auditors (Adjunct) Kunihiko Matsuo Kazuo Wakasugi Hiroshi Sato* 2 Representative Director Hisanori Yoshimura Tohru Tsuji* Akira Isono Junji Sato Michihisa Shinagawa 3 Representative Director Shigeo Hirai *Outside Auditor Masatoshi Sugioka 4 Representative Director and President Naoki Kuroda 5 Director Hisatake Matsuno 6 Director Katsujiro Kida 7 11 7 Director 10 6 9 8 5 Mutsuhisa Fujii 12 13 8 Director 4 2 Takeshi Maki 3 1 9 Director Seiji Yui 10 Director Masaharu Sano 11 Director Akinori Sakamoto 12 Director Seiya Ito 13 Statutory Auditor Shigeru Hayashi INPEX Holdings Inc. 37

INPE X Financial Section

+ INPEX TEIKOKU DATA

Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Consolidated Balance Sheets 50 Consolidated Statements of Income 52 Consolidated Statements of Shareholders’ Equity 53 Consolidated Statements of Cash Flows 54 Notes to Consolidated Financial Statements 55 Report of Independent Auditors 67 DATA TEIKOKU INPEX 38 NE odnsInc. Holdings INPEX Analysis ofFinancialConditionandResultsOperations Management’s Discussionand Factors AffectingOurResultsofOperations Overview • levelofexplorationactivities; • ourcrudeoilandnaturalgas sales volumes; • crudeoilandnaturalgasprices; including thefollowing: A numberoffactorsaffectourresults ofoperations, ¥120 markinDecember2005.Thereafter,theyen at thebeginningoffiscalyear,exceeding against theU.S.dollarfellgraduallyfrom¥107.41 States, theexchangerateofJapaneseyen to continuousrisesininterestratestheUnited est ratesbetweenJapanandtheUnitedStatesdue 39.7%, fromthepreviousfiscalyear. was US$55.77perbbl,anincreaseofUS$15.84,or price oftheCompany’scrudeoilforfiscalyear the fiscalyear.Asaconsequence,averagesales remained highatUS$66.63perbbltheendof and theclosingpriceofnear-termfuturesWTI due toincreasedgeopoliticalriskandotherfactors, year, buttrendedupwardagainfromJanuary2006 to aroundUS$56perbbltowardtheendof point onAugust30,2005.Thereafter,thepricefell of thefiscalyear,rosetoUS$70.85perbblatone which stoodatUS$53.25perbblinthefirstquarter price ofWestTexasIntermediate(WTI)crudeoil, refining capacity,withtheresultthataverage struck theUnitedStatesrevealedabottleneckinits played arole.Furthermore,thehurricanesthat and speculativedealinginoilfuturesmarketalso Other factorsincludingincreasedgeopoliticalrisk decline inproductioncapacityOPECcountries. rose duetoachangeinthefundamentals,notably rapid growthinChinaandIndia.Crudeoilprices tained strengthoftheUSeconomy,aswell Demand forpetroleumincreasedduetothesus- business performanceoftheINPEXGroup. employment rates. with increasedpersonalconsumptionandimproved moderate upwardtrendintheJapaneseeconomy porate earningsimproved.Thereweresignsofa exports andcapitalinvestmentincreasedcor- growth primarilyintheUnitedStatesandChina, year underreview.Supportedbyglobaleconomic tinued tobenefitfromamodestrecoveryduringthe and naturalgasprices,theJapaneseeconomycon- In spiteofthecontinuedupwardtrendincrudeoil Meanwhile, reflectingthewideninggapininter- Crude oilpriceshaveasignificantimpactonthe from thepreviousyear. which representsyendepreciationof¥6.18or5.8% sales oftheCompanywas¥113.56perUSdollar, As aconsequence,theaverageexchangeratefor ¥10.06 lowerthanattheendofpreviousyear. of theyearunderreviewitstoodat¥117.47,or end ofquantitativeeasinginJapan,andatthe rose slightlyonspeculationofarate-risewiththe • corporatetaxesimposedonus outsideJapan. • fluctuationininterestrates;and fluctuationinexchangerates between theU.S. • and 787.8MMcfperdayofnaturalgas. Mbbls perdayofcrudeoil,condensateandLPG, the yearendedMarch31,2006averaged204.7 proved undevelopedreserves.Netproductionfor 24.8% ofsuchreserveswereclassifiedasnet natural gasasofMarch31,2006.Approximately crude oil,condensateandLPG,3,102.5Bcfof reserves werecomprisedof1,053.9MMbbls production was336.0Mboeperday.Netproved the yearendedMarch31,2006,ournetannual reserves wereapproximately1,571MMboe,andfor prices. were historicalhighsduetotheincreaseofcrudeoil respectively. Resultsfornetsalesandincome amounted to¥462.7billionand¥241.5billion, billion. Netsalesofcrudeoilandnaturalgas sales of¥704.2billionandnetincome¥103.5 subsidiaries. considering theincreasingmaterialityofthesetwo of theCompany’sconsolidatedfinancialresults, was madeinordertoestablishabetterpresentation January 1,2005toMarch31,2006.Thischange result, thesetwosubsidiarieshad15monthsfrom March 31,theconsolidationclosingdate.Asa statements preparedforconsolidationpurposeasof 2005, theCompanybegantousetheirfinancial 31, wasusedbytheCompany.EffectiveApril1, fiscal yearofthesetwosubsidiaries,i.e.,December Sea, Ltd.andINPEXNorthCaspianLtd.,the purpose ofconsolidatingINPEXSouthwestCaspian dollar andJapaneseyen; As ofMarch31,2006,ourtotalnetproved For theyearendedMarch31,2006,wehadnet Until theyearendedMarch31,2005,for INPEX Holdings Inc. 39

Crude Oil and Natural Gas Prices production sharing contracts depend on not only While we negotiate sales prices for crude oil and production levels but also on the price of crude oil condensate with customers, those prices generally and natural gas, cost recovery and equity portion. take into account official prices, which are determined by governmental authorities in their Level of Exploration Activities respective oil producing regions, which fluctuate Due to our policy of expensing exploration costs or, INPEX generally in line with the fluctuation in international in the case of production sharing contracts, provid- crude oil prices. Sales contracts for crude oil are ing a full allowance for recoverable costs incurred in generally one-year contracts but also include spot the exploration phase, an increase in our level of contracts. In both cases, sales prices are those at participation in exploration phase projects has a the time of sale and thus fluctuate. more immediate negative impact on our results of For our natural gas, which is currently mostly operations than would be the case if such costs produced in Indonesia, the selling price is deter- were accounted for using the successful efforts or mined based on the Indonesian Crude Price, or full cost method of accounting under U.S. GAAP. ICP, pursuant to each sales contract. Sales contracts for natural gas are long-term contracts, typi- Fluctuation in Exchange Rates Between the cally lasting over 10 years. Typically, natural gas U.S. Dollar and Japanese Yen sales prices move in conjunction with crude oil Because our sales of crude oil and natural gas, TEIKOKU prices. most of our expenses and a substantial portion of As mentioned above, we are exposed to fluctua- our debt are denominated in U.S. dollars, our net tions in prices of crude oil and natural gas, which income, which is denominated in Japanese yen, is are determined by reference to international market affected by fluctuations in the exchange rate prices. International oil and gas prices are volatile between these currencies. Appreciation of the and are influenced by global as well as regional Japanese yen against the U.S. dollar negatively supply and demand conditions. This volatility has a impacts our sales and related earnings, while a significant effect on our net sales and net income. depreciation of the Japanese yen against the U.S. The effect of price changes on our sales and net dollar has the opposite effect. However, as a sub- income is highly complex. For example: stantial portion of our long-term debt is denominat- • natural gas sales prices move together with crude ed in U.S. dollars, revaluation of such long-term DATA oil prices; however, movements in sales prices of debt at the end of each period results in a foreign natural gas are not directly proportional to those of exchange gain if the Japanese yen appreciates crude oil prices; and against the U.S. dollar, while a depreciation of the • since sales and net income are determined by the Japanese yen against the U.S. dollar has opposite prices as of the dates on which sales are record- effect. As a result, these positive and negative ed, the actual transaction price does not match effects cancel out each other. the average price of the period. Fluctuation in Interest Rates Our Crude Oil and Natural Gas Sales We fund certain exploration and development pro- Volumes jects with long-term loans. A substantial portion of Our crude oil and natural gas sales volumes depend our long-term debt has floating interest rates that primarily on the level of proved and developed are determined by reference to the 6-month London reserves in the projects in which we participate, and Interbank Offered Rate in U.S. dollars. Accordingly, market demand for crude oil and natural gas. The we are exposed to fluctuation in interest rates in level of proved and developed reserves is affected U.S. dollars. by such factors as speed at which successful exploration and development moves to production and Corporate Taxes Imposed on Us Outside speed at which we produce crude oil and natural Japan gas, the extent to which we acquire additional pro- We conduct all operations outside Japan, and most ducing reserves, our own as well as our partners’ of corporate taxes are paid overseas. With respect expertise in recovery from reserves, and expiration to the overseas taxes, expenses incurred in Japan and extension of the terms of the contracts under are not deductible in general. Such domestic which we produce crude oil and natural gas. As expenses include those relating to administrative described below in “Our Method of Accounting for expenses at our headquarters, foreign exchange Types of Arrangements, ” our sales volumes under losses and the provision of various types of DATA TEIKOKU INPEX 40 NE odnsInc. Holdings INPEX Our MethodofAccountingforTypesArrangements 1 “firsttranchepetroleum,”whichisaprescribed (1) production forthatyearisallocatedto: that typeofPSC,attheendeachfiscalyear,total ment thatappliestoprojectsinIndonesia.Under ing discussionisbasedononetypeofPSCarrange- country’s governmentandcontractors.Thefollow- allocating oilandgasproductionamongthehost ourselves) mustfirstbedeterminedunderPSCs. ernment entity)andcontractors(including tion amongthehostcountry’sgovernment(orgov- The allocationofcrudeoilandnaturalgasproduc- Cost RecoveryandProductionSharing Production SharingContracts mately 40%wereunderconcessionagreements. were attributabletosalesunderPSCsandapproxi- March 31,2006,approximately60%ofournetsales and concessionagreements.Fortheyearended arrangements inconnectionwiththeseactivities:PSCs Currently, wehavemainlyenteredintotwotypesof with respecttoonePSC,wecannotdeductsuch in Indonesiaexpandandrelatedexpensesincrease tax purposes.Thus,evenifourexplorationactivities the aggregatingofexpensesfromdifferentPSCsfor gas operationsonaPSCbasisanddoesnotpermit increasing oureffectivetaxrate. rate taxeswepayoverseasdonotdecrease,thereby dated statementofincomedecreases,butcorpo- increase, pre-taxincomerecordedinourconsoli- allowances. Whensuchdomesticexpenses 2 “costrecoveryportion,”whichistheoilandgas (2) portion oftotalp recovery portion”decreaseswhile thatofthe the volumeofoilandgascomprising the“cost unit priceofcrudeoilandnatural gasincreases, mined baseduponthecurrent unit price,asthe because theoilandgasequivalentisdeter- and whichisallocatedonlytothecontractors; current period,ascalculatedunderthePSC, depreciation ofthecapitalexpendituresfor tion duringthecurrentperiodand(ii)scheduled non-capital expendituresincurredforproduc- unit priceofcrudeoilandnaturalgas,(i) equivalent, determinedbaseduponthecurrent pursuant toprescribedpercentages; host country’sgovernmentandthecontractors Different PSCsprovidefordifferentformulas Indonesia imposescorporatetaxesonoiland roduction allocated between the margin regimefrom2006. result inthatportionbecomingsubjecttoafixed Upper ZakumFieldswerechangedfrom2004,and crude oilproductionattheADMABlockin applicable toanothersubstantialportionofour oil prices.Inaddition,corporatetaxratesandothers margin regime,limitingoursensitivitytochangesin tion ofourcrudeoilproductionissubjecttoafixed er PSCinthatcountry. expenses fromtaxableincomeattributabletoanoth- production sharing.” capitalized under“Recoverableaccounts incurred underthetermsofrelevantPSCis Our shareofallrecoverableexplorationcosts Exploration Costs Recoverable CostsunderPSCs 3 “equityportion,”whichrepresentstheresidual (3) ascostofsales,aportion“Recoverable • asnetsales,ourshareoftotalsalesrelatingto • For purposesofourstatementsincome,werecord: “cost recoveryportion.” ered throughtheallocationofourshare account underproductionsharing”thatisrecov- cated tocontractors,and crude oilandnaturalgasproductionthatareallo- scribed percentages. ernment andthecontractorspursuanttopre- and isallocatedbetweenthehostcountry’sgov- PSC; and succeeding yearinaccordancewiththerelevant quantity notsocoverediscarriedforwardtothe is coveredbytheactualproduction,and recovery portion”willbereducedtotheextentit and gasequivalentsocalculated,the“cost enough tocovertheentirequantityofoil and iftheactualproductionforyearisnot “equity portion”(explainedbelow)increases; In theUnitedArabEmirates,asubstantialpor- INPEX Holdings Inc. 41

Development Costs method. Generally, cost recovery provisions under We record our share of all recoverable expenditures PSCs do not cover such expenditures or costs. under the terms of the relevant PSC under Interest on Loans “Recoverable accounts under production sharing.” We expense interest on loans we obtain for PSC Production Costs projects. INPEX During the production phase, operating costs incurred for production are initially included under Concession Agreements “Recoverable accounts under production sharing” if Acquisition Costs such costs are recoverable under the relevant PSC. We account for acquisition costs related to projects Administrative Expenses under concession agreements, or “Mining rights” in Administrative expenses are recorded under the same manner as those related to projects under “Recoverable accounts under production sharing” if PSCs, as described above. such expenses are recoverable under the relevant Exploration Costs PSC. Our share of costs incurred for exploration is expensed as incurred. As explained above under “Cost Recovery and Production Sharing,” such expenses are recovered Development Costs TEIKOKU as capital or non-capital expenditures. Our share of costs related to mining facilities is capitalized under “Tangible fixed assets” in the balance Non-recoverable Costs under PSCs sheets. We depreciate the tangible fixed assets primarily under the unit-of-production method during Acquisition Costs our production. Such depreciation expenses consti- For projects under PSCs that are entirely in the tute cost of sales. exploration phase, we expense costs relating to the acquisition of rights to explore, develop and Production Costs produce, or “Exploration and development rights,” During the production phase, our share of operating as they are incurred. When we acquire rights to costs is included in cost of sales. projects which are already in the development or Administrative Expenses

production phase, we record the acquisition expen- DATA Our share of administrative expenses is expensed ditures or costs under “Exploration and develop- as incurred. ment rights” in our consolidated balance sheets, which are amortized under the unit-of-production

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in reasonably could have used in the current period, conformity with Japanese GAAP. The preparation of or by changes in the accounting estimates that are these financial statements requires the use of esti- reasonably likely to occur from period to period. We mates, judgments and assumptions that affect the have identified the following critical accounting esti- reported amounts of assets and liabilities at the date mates with respect to our financial presentation: of the financial statements and reported amounts of revenues and expenses during the reporting period. Allowance for Recoverable Accounts under Actual results may differ from these estimates, judg- Production Sharing ments and assumptions. We capitalize expenditures made during the explo- An accounting estimate in our consolidated ration, development and production phases under financial statements is a critical accounting estimate PSCs as “Recoverable accounts under production if it requires us to make assumptions about matters sharing,” if they are recoverable under the relevant that are highly uncertain at the time the accounting PSC. During the exploration phase prior to obtaining estimate is made, and if the presentation of our governmental approval for development, in light of financial condition or results of operations are mate- the significant uncertainty involved in the explo- rially affected either by different estimates that we ration activities for such projects, a reserve in equal DATA TEIKOKU INPEX 42 NE odnsInc. Holdings INPEX future changesintheactual situation ofprojects that theassessmentandestimates arereasonable, such asdelaysindevelopment. Whilewebelieve which areestimatedindividually foreachproject, losses onoilandnaturalgasdevelopmentactivities We recognizeliabilitiesfortheamountofprovable Development Activities Liabilities forLosseson future resultsofoperations. changes inthedecommissioningplanmayaffect assessment andestimatesarereasonable,future decommissioning plan.Whilewebelievethatthe future decommissioningcostsbasedonthe We recognizeliabilitiesfortheexpectedamountof Decommissioning Costs Liabilities forSiteRestorationand cantly affectfutureresultsofoperations. in theestimatesofprovedreservesmaysignifi- proved reserveestimatesareappropriate,changes proved reservequantities.Whilewebelievethatour method requiresasignificantestimateastothe unit-of-production method.The during theproductionphaseareamortizedby development rightswhensuchareacquired Mining facilities,miningrightsandexploration Unit-of-production Method affect futureresultsofoperations. changes intheactualsituationofprojectsmay assessment andestimatesarereasonable,future production sharing.”Whilewebelievethatthe ject as“Allowanceforrecoverableaccountsunder ment activitiesindividuallyestimatedforeachpro- reserve isprovidedforprobablelossesondevelop- field inacontractarea,lightoftheuncertainly, After governmentalapprovalfordevelopmentofa is reversedtoincomeinthestatementsofincome. at whichpointtheexcessofallowancebalance “Recoverable accountsunderproductionsharing,” capitalized duringtheexplorationphaseunder the remainingbalanceofexplorationcostpreviously balance sheetuntiltheallowanceexceeds allowance continuestoremainunchangedinour are notprovidedinprinciple.Generally,this costs incurredthereafterinthesamecontractarea a contractareaisreceived,reservesforexploration governmental approvalfordevelopmentofafieldin tial lossesfromunsuccessfulexploration.Once tion sharing,”whichisareserveaccountforpoten- “Allowance forrecoverableaccountsunderproduc- amounts toexplorationcostsisprovidedforas may affectfutureresultsofoperations. results, adjustmentsmayberequired. conditions, foreignexchangeratesorpooroperating able incomeislowerthanexpectedduetomarket income basedonavailableevidence.Iffuturetax- dependent onourgeneratingsufficienttaxable Realization ofdeferredtaxassetsisprincipally credits inthecalculationofvaluationallowances. Also, wetakeintoaccounttheeffectofforeigntax more likelythannotthatassetswillberealized. allowances areprovidedwhenwebelievethatitis related partiesandrevaluationofland.Valuation arising mainlyfromthewrite-downofinvestmentsin ences (includingnetoperatinglosscarry-forwards) We recorddeferredtaxassetsfortemporarydiffer- Deferred TaxAssets of operations. and foreignexchangeratesmayaffectfutureresults changes intheactualproductionvolume,prices assessment andestimatesarereasonable,future assets oftheinvestees.Whilewebelievethat ments atanestimatedamountbasedonthenet an allowanceforprobablelossesonsuchinvest- engaged inoilandgasactivities,haveprovided We havemadeinvestmentsincompaniesthatare Companies Allowance forInvestmentsinExploration would havebeenreported. method, differentretirement costs andliabilities ment benefitobligationsbythe projected unitcredit actuarially determinedpresentvalueoftheretire- ed liabilitieshadbeenrecognizedbasedonthe date. Accordingly,ifourretirementcostsandrelat- minated theiremploymentasofthebalancesheet paid toallactiveemployeesasiftheyvoluntarilyter- fits attheamountwhichwouldberequiredto method andprovideanaccrualforretirementbene- employees. Becauseofthis,weusethesimplified benefit planthatindividuallycoversmorethan300 is lessthan300.Wedonothaveanyretirement and relatedliabilitiesifthenumberofitsemployees simplified methodtoaccountforitsretirementcosts method. However,acompanyispermittedtouse benefit obligationsbytheprojectedunitcredit actuarially determinedpresentvalueofretirement retirement costsandrelatedliabilitiesbasedonthe Retirement Benefits”requirestherecognitionof The Japaneseaccountingstandard“Accountingfor Retirement BenefitsforEmployees INPEX Holdings Inc. 43

Historical Results of Operations

The following table shows certain consolidated income statement data derived from our audited consolidated financial statements: (Millions of yen, except percentages) INPEX Years ended March 31, 2005 2006

Net sales ¥478,587 100.0% ¥704,235 100.0% Cost of sales 197,094 41.2 257,904 36.6 Gross profit 281,493 58.8 446,331 63.4 Exploration expenses 2,474 0.5 5,521 0.8 Selling, general and administrative expenses 8,718 1.8 10,211 1.4 Depreciation and amortization 1,638 0.4 3,948 0.6 Operating income 268,663 56.1 426,651 60.6 Other income: Interest income 4,060 0.9 9,742 1.4

Equity in earnings of affiliates — — 1,347 0.2 TEIKOKU Other 678 0.1 1,183 0.1 4,738 1.0 12,272 1.7 Other expenses: Interest expense 2,984 0.6 9,033 1.3 Equity in losses of affiliates 1,583 0.3 —— Provision for allowance for recoverable accounts under production sharing 518 0.1 3,642 0.5 Amortization of exploration and development rights 1,607 0.3 405 0.1 Provision for site restoration and decommissioning costs — — 1,584 0.2 Provision for losses on development activities — — 1,982 0.3 Provision for doubtful accounts — — 2,311 0.3 DATA Amortization of goodwill 2,784 0.6 —— Foreign exchange loss 2,859 0.6 12,418 1.8 Other 2,434 0.6 4,008 0.5 14,769 3.1 35,383 5.0 Income before income taxes and minority interests 258,632 54.0 403,540 57.3 Income taxes 182,607 38.1 298,657 42.4 Minority interests (469) (0.1) 1,406 0.2 Net income ¥ 76,494 16.0% ¥103,477 14.7%

Net Sales The increase in consolidated net sales of crude Net sales increased ¥225.6 billion, or 47.1%, to oil and natural gas was mainly due to the net effect ¥704.2 billion for the year ended March 31, 2006 of the following factors: while our sales volume of from ¥478.6 billion for the year ended March 31, natural gas decreased 4.5%, our sales volume of 2005. Of this figure, consolidated net sales of crude crude oil increased 4,641 thousand bbls, or 6.8%, oil increased ¥169.5 billion, or 57.8%, to ¥462.7 to 72,521 thousand bbls, which reflects an increase billion from ¥293.2 billion for the year ended March in production volume of crude oil at the ACG Oil 31, 2005. Consolidated net sales of natural gas Fields and ADMA Block, resulting in an increase of increased ¥56.1 billion, or 30.3%, to ¥241.5 billion net sales in amount of ¥11.5 billion; there was a from ¥185.4 billion for the year ended March 31, positive impact on net sales in amount of ¥175.8 2005. billion, since the increase in the Company’s average DATA TEIKOKU INPEX 44 NE odnsInc. Holdings INPEX of fixedassets. substantial amountofdepreciationoramortization at thetimeofrecovery,andthuswedonothave duction sharing”arereflectedincostofgoodssold costs includedin“Recoverableaccountsunderpro- Southwest CaspianSea,Ltd. development rightswhichbelongtoINPEX an increaseinamortizationofexplorationand ended March31,2005.Thiswasprimarilydueto March 31,2006from¥1.6billionfortheyear billion, or141.0%,to¥3.9billionfortheyearended Depreciation andAmortizationincreasedby¥2.3 Depreciation andAmortization the ACGOilFields. marily duetoanincreaseintransportationcostsat for theyearendedMarch31,2005.Thiswaspri- the yearendedMarch31,2006from¥8.7billion increased ¥1.5billion,or17.1%,to¥10.2billionfor Selling, generalandadministrativeexpenses Selling, GeneralandAdministrativeExpenses in Australia. exploration activityattheWA-285P(Ichthys)Block 2005. Thisincreasewasprimarilyduetoincreased 2006 from¥2.5billionfortheyearendedMarch31, 123.2%, to¥5.5billionfortheyearendedMarch31, Exploration expensesincreasedby¥3.0billion,or Exploration Expenses associated withhighersalesfromtheACGOilFields. and anincreaseintherecoveryofinvestment and productionattheOffshoreMahakamBlock, Block, anincreaseininvestmentdevelopment ties associatedwithhighersalesattheADMA 2005. from ¥197.1billionfortheyearendedMarch31, ¥257.9 billionfortheyearendedMarch31,2006 Cost ofsalesincreased¥60.8billion,or30.9%,to Cost ofSales against theU.S.dollar. a ¥6.18perU.S.dollar,or5.8%yendepreciation ended March31,2006was¥113.56perU.S.dollar, rate fortheCompany’snetsalesduringyear and of¥38.3billionsincetheaverageexchange sales priceofnaturalgasalsoincreased29.3%; increase overthepreviousyear,andaverage 2006 wasUS$55.77perbbl,aUS$15.84or39.7% sales priceofcrudeoilfortheyearendedMarch31, Under ouraccountingforPSCs,capitalized This wasprimarilyduetoanincreaseinroyal- high taxburdenwasimposed. 2005 duetoincreasedsalesinaregionwhere lion increased ¥116.1billion,or63.6%,to¥298.7bil- Income taxesfortheyearendedMarch31,2006 Income Taxes production sharingof¥3.1billion. sion forallowancerecoverableaccountsunder expenses of¥6.0billionandanincreaseinprovi- exchange lossof¥9.6billion,anincreaseininterest 2005. Thiswasmainlyduetoanincreaseinforeign from ¥14.8billionfortheyearendedMarch31, to ¥35.4billionfortheyearendedMarch31,2006 Other expensesincreased¥20.6billion,or139.6% Other Expenses equity inearningsofaffiliates¥1.3billion. interest incomeof¥5.7billionandaccountingfor 2005. Thiswasprimarilyduetoanincreasein from ¥4.7billionfortheyearendedMarch31, ¥12.3 billionfortheyearendedMarch31,2006 Other incomeincreased¥7.6billion,or159.0%,to Other Income lion fortheyearendedMarch31,2005. for theyearendedMarch31,2006from¥76.5bil- increased ¥27.0billion,or35.3%,to¥103.5billion As aresultoftheforegoingfactors,netincome Net Income 2005. loss of¥0.5billionfortheyearendedMarch31, 2006 reflectedanetprofitof¥1.4billionfrom Minority interestsfortheyearendedMarch31, Minority Interests such taxesresultsinahigheffectiveincometaxrate. expenses incurredinJapanarenotdeductiblefor corporate taxesarepaidoverseasandadministrative Outside Japan,”thefactthatmostofCompany’s Operations—Corporate TaxesImposedonUs year endedMarch31,2005. March 31,2006was74%comparedto71%forthe As explainedin“FactorsAffectingOurResultsof The effectiveincometaxratefortheyearended from ¥182.6billionfortheyearendedMarch31, INPEX Holdings Inc. 45

Investment and Funding

Our Investments for Crude Oil and Natural of which governmental approval for development Gas Projects has been received, are included in this category.

In order to maintain stable earnings, we need to Our definition of exploration and development INPEX continuously explore for new reserves of crude oil expenditures and the basis of preparation of the fol- and natural gas, develop, produce and distribute. lowing table are different from those required under The following information, which includes the the Statement of Financial Accounting Standard breakdown of our investments among exploration No. 69, “Disclosure about Oil and Gas Producing expenditures, development expenditures and oper- Activities,” or SFAS 69. Such differences include, ating expenses, has been prepared based on avail- but are not limited to, the following: able data in the reports provided by operators. The • Our expenditures reflected in the table are on a definition of each item is as follows: cash-call basis as to joint ventures for PSCs where • Exploration expenditures include exploration we are not an operator, while SFAS 69 requires drilling, and geological and geophysical studies. that expenditures be recorded on an accrual If the project (contract area) is entirely in the basis.

exploration phase, administrative costs, such as • We prepared the table based on definitions in the TEIKOKU personnel costs and office operations costs in the reports from operators. These definitions may not country where the relevant project is conducted, be consistent with that of SFAS 69. are included in this category. • SFAS 69 requires that administrative costs not • Development expenditures include development directly related to exploration and development drilling and production facilities. activities be excluded from exploration and devel- • Operating expenses include well operations, main- opment expenditures. However, administrative tenance, and supervision of production activities. costs are not necessarily excluded from those Administrative expenses in the project (contract expenditures. area) where there is a producing field and/or a field

The table below shows our expenditures for the years ended March 31, 2005 and 2006: DATA

(Millions of yen, except percentages) Years ended March 31, 2005 2006

Exploration ¥ 4,220 2.4% ¥ 8,369 3.6% Development 113,406 65.7 167,611 72.0 Subtotal 117,626 68.1 175,980 75.6 Operating expenses 55,009 31.9 56,747 24.4 Total ¥172,635 100.0% ¥232,727 100.0%

The table below shows our exploration and development expenditures for the years ended March 31, 2005 and 2006 by geographical region:

(Millions of yen, except percentages) Years ended March 31, 2005 2006

Asia and Oceania ¥ 66,643 56.6% ¥ 89,756 51.0% Middle East 8,543 7.3 12,911 7.3 Caspian Sea area and others 42,440 36.1 73,313 41.7 Total ¥117,626 100.0% ¥175,980 100.0% DATA TEIKOKU INPEX 46 NE odnsInc. Holdings INPEX ideEs 05796.9 2005 50,517 1.7 1.4% 891 ¥716 Caspian Seaareaandothers Middle East 19.5 Asia andOceania 2005 Years endedMarch31, 10,710 2.4 78.1% recoverable ¥42,975 1,324 exploration anddevelopmentrights,signingbonusesaswelltheacquiredtangiblefixedassets 2005 and2006bygeographicalregion.Expendituresforacquisitionsincludeacquisitioncostofminingrights, The tablebelowshowsourexpendituresforacquisitionsofoilandgaspropertiestheyearsendedMarch31, Our ExpendituresforAcquisitionsofCrudeOilandNaturalGasProjects Caspian Seaareaandothers Middle East Asia andOceania Years endedMarch31, ADMA BlockintheMiddleEastregionduringyearendedMarch31,2005. 2006 from¥52.1billionfortheyearendedMarch31,2005.Thiswasprimarilyduetoacquisitionof in theAsiaandOceaniaregion. expenditures attheKashaganOilField,ACGFieldsinCaspianSeaareaandOffshoreMahakamBlock from ¥172.6billionfortheyearendedMarch31,2005.Thiswasprimarilyduetoincreasesindevelopment region: oa 5,2 100.0% ¥52,124 100.0% Total ¥55,009 Total Our expendituresforacquisitionsdecreasedby¥51.7billionto¥0.4theyearendedMarch31, Our expendituresincreasedby¥60.1billion,or34.8%,to¥232.7billionfortheyearendedMarch31,2006 The tablebelowshowsouroperatingexpensesfortheyearsendedMarch31,2005and2006bygeographical accounts underproductionsharingduetoacquisitions. (Millions ofyen,exceptpercentages) (Millions ofyen,exceptpercentages) 4,6 71.3% ¥40,466 5,4 100.0% ¥56,747 29822.9 12,978 ,0 5.8 3,303 1227.7% ¥112 45100.0% ¥405 9 72.3 293 —— 2006 2006 INPEX Holdings Inc. 47

Analysis of Recoverable Accounts under Production Sharing

With respect to projects under PSCs, our share of costs arising during the exploration, development and production phases are capitalized under “Recoverable accounts under production sharing.” The following table

shows changes in the balance of “Recoverable accounts under production sharing” during the years ended INPEX March 31, 2005 and 2006:

(Millions of yen) Year ended March 31, Recoverable accounts under production sharing 2005 2006

Balance at beginning of period ¥208,768 ¥239,619 Add: Exploration costs 1,743 2,813 Development costs 101,416 155,086 Operating expenses 41,909 41,377 Other — 3,341

Less: Cost recovery—capital expenditures 38,375 62,331 TEIKOKU Cost recovery—non-capital expenditures 72,111 84,997 Other 3,731 635 Balance at end of period ¥239,619 ¥294,273 Allowance for recoverable accounts under production sharing at end of period ¥ (41,518) ¥ (44,547)

“Cost recovery—non-capital expenditures” are Other costs increased due to reclassification of generally higher than “operating expenses” certain recoverable costs invested by March 31, because some of the exploration costs and develop- 2005 to recoverable accounts under production ment costs that are recoverable in the fiscal year sharing from other investment. when such costs are incurred are included in addi- Cost recovery during the year ended March 31,

tion to operating expenses. 2006 primarily consisted of cost recovery at the DATA Compared with the year ended March 31, 2005, Offshore Mahakam Block, South Natuna Sea Block B exploration costs for the year ended March 31, and ACG Oil Fields. This increase reflected increased 2006 increased primarily due to the increase at the cost recovery from the Offshore Mahakam Block Masela Block. and ACG Oil Fields. Development costs increased reflecting increas- A substantial portion of the amount under es in development expenditures at the Kashagan Oil “Less: Other” for the year ended March 31, 2006 Field, ACG Oil Fields and Offshore Mahakam Block. related to reductions in the balance of recoverable Operating expenses for the year ended March 31, accounts under production sharing with respect to 2006 remained on par with results from the year fields being closed. ended March 31, 2005. DATA TEIKOKU INPEX 48 NE odnsInc. Holdings INPEX Liquidity andOurFundingSources 01100—14,096 14,096 14,096 9,791 128,375 43,594 (119,956) — 120,655 — 131,207 ¥ — — ¥13,756 120.0 24,945 120.0 120.0 814.8 371.1 ¥— $117.1 Totalyenequivalent Cash andcashequivalentsatendofperiod Yen Net cashprovidedbyfinancingactivities Net cashusedininvestingactivities Net cashprovidedbyoperatingactivities U.S.dollars Year endedMarch31, The followingtablesummarizesourhistoricalcashflowsfortheyearsendedMarch31,2005and2006: Historical CashFlows 2012 andthereafter 2011 2010 2009 2008 2007 Years endingMarch31, The followingtablesummarizesthematuritiesofouroutstandinglong-termdebtasMarch31,2006: Maturities ofLong-termDebt projects whichareintheexplorationphasewith hand andmanyothersources.Wefundoilgas position withsufficientcashonhand. ness expansionwhilemaintainingasoundfinancial improve capitalefficiencyinthelongtermbybusi- liquid financialinstruments.Itisourstrategyto ment policyistoinvestexcesscashinlow-riskand and gasprices.Forthispurpose,ourcashmanage- manner andtoprovideforanysteepdeclineofoil new crudeoilandnaturalgasprojectsinatimely any giventimetofundexpendituresforexistingand Our policyistomaintainsufficientcashonhandat oa 1630¥495¥220,293 $1,663.0¥24,945 Total Our primarysourcesoffundingarecashon arrangement, issuanceofbondsandequityfinancing. in thefutureusingnon-recourseprojectfinancing, service inareserveaccount. collateral long-term debthavebeenguaranteedbyJOGMEC. aggregate outstandingprincipalamountsofour have beenprovidingsuchlong-termloans.Certain term loans.JBICandJapanesecommercialbanks development phasewithcashonhandand/orlong- siders, andoilgasprojectswhichareinthe cash onhandandequityinvestmentsfromout- We areconsideringtodiversifyfinancingsources We arerequiredtomaintainforJBICcash Long-term debtdenominatedin generally equivalenttosixmonths’debt 2005 (Millions ofyenandU.S.dollar) (Millions ofyen) 218,240 ¥ (252,400) 114,968 14,351 2006 INPEX Holdings Inc. 49

Cash Provided by Operating Activities Cash Provided by Financing Activities Cash provided by operating activities increased Cash provided by financing activities increased ¥4.6 ¥87.0 billion to ¥218.2 billion for the year ended billion to ¥14.4 billion for the year ended March 31, March 31, 2006 from ¥131.2 billion for the year 2006 from ¥9.8 billion for the year ended March ended March 31, 2005. This increase was primarily 31, 2005. This increase was primarily due to long- due to an increase of income before income taxes term borrowing from JBIC for development of the INPEX and minority interests because of the rise in crude Kashagan Oil Field. oil and natural gas prices.

Cash Used in Investing Activities Cash used in investing activities increased ¥132.4 billion to ¥252.4 billion for the year ended March 31, 2006 from ¥120.0 billion for the year ended March 31, 2005. This increase was due to acquisition of investment securities and an increase in development expenditures for the ACG Oil Fields and Kashagan Oil Field. TEIKOKU DATA DATA TEIKOKU INPEX 50 NE odnsInc. Holdings INPEX As ofMarch31,2005and2006 INPEX CORPORATIONandSubsidiaries Consolidated BalanceSheets oa ses¥779,228 See accompanyingnotestoconsolidatedfinancialstatements. Total assets Current assets: ASSETS Investments andotherassets: Tangible fixedassets: Intangible assets: netre 1,282 23 18,391 53,339 ¥128,375 Deferred taxassets(Note6) Inventories Marketable securities(Note4) Accounts receivable—trade Cash andcashequivalents te 144 (5,102) Less allowanceforinvestmentsinexploration 12,046 4,002 239,619 98,942 (41,518) Less allowanceforrecoverableaccountsunderproductionsharing Recoverable accountsunderproductionsharing 21,670 (221,717) Other 153,318 37,010 Less accumulateddepreciationandamortization Other Land Machinery, equipment,andvehicles Wells Buildings andstructures Other currentassets(Note5) te netet 20,901 2,208 (661) 114 118,355 Less allowancefordoubtfulaccounts Other investments Deferred taxassets(Note6) Long-term loansreceivable Investment securities(Notes4and5) iigrgt 5,381 133,106 Mining rights Exploration anddevelopmentrights 138,631 289,978 238,420 198,101 333,916 68,261 2005 iloso e (Note3) Millions ofyen 7,3 $8,278,182 ¥ 972,438 $978,701 ¥ 114,968 2601 (2,009,542) (236,061) 9,7 2,505,090 1,164,187 294,273 136,757 2,564,748 301,281 1,368,383 889,367 160,744 104,474 2,192,679 257,574 3,6 2,017,256 2,125,870 236,967 249,726 3,5 1,120,712 131,650 1,8 4,366,110 512,887 4,4)(379,220) (44,547) 520555,206 65,220 158183,179 511,603 21,518 60,098 03587,810 10,315 185,120 463,156 21,746 54,407 247190,832 87,435 22,417 10,271 522 (44,965) (5,282) 296 (25,079) (2,946) ,4 29,361 26,679 3,449 3,134 ,0 34,068 4,002 ,5 41,347 4,857 ,3 14,761 1,734 062006 2006 5 2,128 250 Thousands of U.S. dollars INPEX Holdings Inc. 51

Thousands of U.S. dollars Millions of yen (Note 3) LIABILITIES AND SHAREHOLDERS’ EQUITY 2005 2006 2006

Current liabilities:

Accounts payable—trade ¥ 20,130 ¥ 20,160 $ 171,618 INPEX Current portion of long-term debt (Note 5) 2,263 13,756 117,102 Income taxes payable (Note 6) 49,938 83,060 707,074 Other current liabilities 50,579 62,625 533,115 122,910 179,601 1,528,909 Long-term liabilities: Long-term debt (Note 5) 175,604 206,537 1,758,211 Deferred tax liabilities (Note 6) 25,815 22,948 195,352 Accrued employees’ retirement benefits 1,504 1,719 14,634 Accrued officers’ retirement benefits 594 651 5,542 Liabilities for site restoration and decommissioning costs — 1,666 14,182 Liabilities for losses on development activities — 1,982 16,872 TEIKOKU Other 6,222 14,733 125,419 209,739 250,236 2,130,212 Total liabilities 332,649 429,837 3,659,121

Minority interests in consolidated subsidiaries 35,283 37,603 320,108

Shareholders’ equity (Note 7): Capital stock: 29,460 29,460 250,787 Authorized: 2005 — 2,356,801 shares 2006 — 2,356,799.56 shares

Issued: 2005 — 1,919,833.75 shares DATA 2006 — 1,919,832.31 shares Additional paid-in capital 62,403 62,403 531,225 Retained earnings 320,090 415,734 3,539,065 Unrealized holding gain (loss) on securities 375 (3,717) (31,642) Translation adjustments (1,031) 1,118 9,518 Less: Treasury stock: 2005 — 1 share (1) —— Total shareholders’ equity 411,296 504,998 4,298,953

Contingent liabilities (Note 12)

Total liabilities and shareholders’ equity ¥779,228 ¥972,438 $8,278,182 DATA TEIKOKU INPEX 52 NE odnsInc. Holdings INPEX For theyearsendedMarch31,2004,2005and2006 INPEX CORPORATIONandSubsidiaries Consolidated StatementsofIncome Income taxes(Note6): Other income: ioiyitrss(2)(469) ¥76,494 (327) ¥34,782 See accompanyingnotestoconsolidatedfinancialstatements. Net income(Note8) Minority interests 1,638 2,474 197,094 2,330 ¥478,587 11,552 105,759 ¥218,831 Depreciation andamortization Selling, generalandadministrativeexpenses Exploration expenses Cost ofsales Net sales Other expenses: Nts1 n 1 ,1 8,718 5,314 (Notes 10and11) urn 501187,405 55,081 Current qiyi annso fiits43— 4,060 — — 1,575 453 10,761 1,497 Equity inearningsofaffiliates Gain onsalesofminingrights Foreign exchangegain Interest income te ,8 2,434 1,986 678 1,217 Other Other eerd527(4,798) 5,237 Deferred oeg xhnels 2,859 2,784 — — — — — 2,984 1,583 — 1,817 — 1,607 Foreign exchangeloss Amortization ofgoodwill Provision fordoubtfulaccounts 746 Provision forlossesondevelopmentactivities Provision forsiterestorationand Amortization ofexplorationanddevelopmentrights Provision forallowancerecoverableaccounts Equity inlossesofaffiliates Interest expense eomsinn ot — — 518 10,057 decommissioning costs under productionsharing noebfr noetxsadmnrt neet 473258,632 94,773 Income beforeincometaxesandminorityinterests prtn noe9,7 268,663 93,876 281,493 113,072 Operating income Gross profit 038182,607 60,318 46614,769 14,606 5534,738 15,503 042005 2004 iloso e (Note3) Millions ofyen 1347$880,880 ¥103,477 $5,995,020 ¥704,235 1,1 2,660,416 312,519 0,4 3,435,260 403,540 2,5 3,632,000 426,651 3,799,532 2,195,488 446,331 257,904 9,5 2,542,411 298,657 1,6)(118,005) (13,862) 02186,924 10,211 533301,209 35,383 248105,712 12,418 222104,469 12,272 ,4 11,467 1,347 82,932 9,742 ,0 11,969 1,406 33,609 3,948 46,999 5,521 ,0 34,120 4,008 10,070 1,183 ,1 19,673 16,872 13,484 2,311 1,982 1,584 31,004 3,642 76,896 9,033 062006 2006 0 3,448 405 —— —— —— —— Thousands of U.S. dollars INPEX Holdings Inc. 53

Consolidated Statements of Shareholders’ Equity INPEX CORPORATION and Subsidiaries For the years ended March 31, 2004, 2005 and 2006

Millions of yen Additional Unrealized Total Capital paid-in Retained holding gain (loss) Translation Treasury shareholders’ stock capital earnings on securities adjustments stock equity

Balance at March 31, 2003 ¥29,460 ¥ — ¥220,853 ¥ 410 ¥ 2,847 ¥— ¥253,570

Net income — — 34,782 — — — 34,782 INPEX Cash dividends paid — — (5,892) — — — (5,892) Bonuses to directors and statutory auditors — — (115) — — — (115) Unrealized holding loss on securities — — — (256) — — (256) Translation adjustments — — — — (3,975) — (3,975) Balance at March 31, 2004 29,460 — 249,628 154 (1,128) — 278,114 Purchase of treasury stock — — — — — (1) (1) Increase due to share exchange transaction — 62,403 — — — — 62,403

Net income — — 76,494 — — — 76,494 TEIKOKU Cash dividends paid — — (5,892) — — — (5,892) Bonuses to directors and statutory auditors — — (140) — — — (140) Unrealized holding gain on securities — — — 221 — — 221 Translation adjustments — — — — 97 — 97 Balance at March 31, 2005 29,460 62,403 320,090 375 (1,031) (1) 411,296 Net income — — 103,477 — — — 103,477 Cash dividends paid — — (7,679) — — — (7,679) Bonuses to directors and

statutory auditors — — (153) — — — (153) DATA Unrealized holding loss on securities — — — (4,092) — — (4,092) Translation adjustments — — — — 2,149 — 2,149 Retirement of treasury stock — — (1) — — 1 — Balance at March 31, 2006 ¥29,460 ¥62,403 ¥415,734 ¥(3,717) ¥ 1,118 ¥— ¥504,998

Thousands of U.S. dollars (Note 3) Additional Unrealized Total Capital paid-in Retained holding gain (loss) Translation Treasury shareholders’ stock capital earnings on securities adjustments stock equity Balance at March 31, 2005 $250,787 $531,225 $2,724,866 $ 3,192 $(8,776) $(9) $3,501,285

Net income — — 880,880 — — — 880,880 Cash dividends paid — — (65,370) — — — (65,370) Bonuses to directors and statutory auditors — — (1,302) — — — (1,302) Unrealized holding loss on securities — — — (34,834) — — (34,834) Translation adjustments — — — — 18,294 — 18,294 Retirement of treasury stock — — (9) — — 9 — Balance at March 31, 2006 $250,787 $531,225 $3,539,065 $(31,642) $ 9,518 $— $4,298,953 See accompanying notes to consolidated financial statements. DATA TEIKOKU INPEX 54 NE odnsInc. Holdings INPEX For theyearsendedMarch31,2004,2005and2006 INPEX CORPORATIONandSubsidiaries Consolidated StatementsofCashFlows e ahue nivsigatvte 2811 (119,956) (218,121) Cash flowsfromfinancingactivities: Net cashusedininvestingactivities Cash flowsfrominvestingactivities: e ahpoie yfnnigatvte 5,2 9,791 17,899 151,120 (23,832) (3,143) (1,295) Net (decrease)increaseincashand equivalents Effect ofexchangeratechangesoncash andcashequivalents Net cashprovidedbyfinancingactivities ahadcs qiaet tedo er¥ 5,8 ¥128,375 ¥54,582 54,582 78,414 See accompanyingnotestoconsolidated financialstatements. Cash andcashequivalentsatendofyear Increase incashandequivalentsdue toashareexchangetransaction Cash andcashequivalentsatbeginning ofyear Cash flowsfromoperatingactivities: (Note 13) etitdcs eoie 910 — (5,892) 940 (9,140) (5,892) (79) (2,282) — 15,611 (195) — — 136,028 1,488 — — 30,320 — — Proceeds fromrefundofrestrictedcash (163,511) Restricted cashdeposited — 3,052 Cash dividendspaidtominorityshareholders — (63,754) Cash dividendspaid 352 5,043 (11,117) Proceeds fromminorityinterestsforadditionalshares Repayment oflong-termdebt (19,661) Proceeds fromlong-termdebt (8,920) 3,685 (633) 22 18,896 (65,236) Proceeds frompurchaseofsubsidiaries’stockresultingin 20,707 Proceeds fromsalesofminingrights(Note13) (58,997) Purchase ofminingrights(Note13) Additional acquisitionofsharesconsolidatedsubsidiary Long-term loanmade Increase inshort-termloansreceivable Investment inrecoverableaccountsunderproductionsharing Proceeds fromsalesofinvestmentsecurities Purchases ofinvestmentsecurities Proceeds fromsalesoftangiblefixedassets Purchases oftangiblefixedassets Proceeds fromsalesofmarketablesecurities te ,4 (4,140) 2,143 (167,832) (55,033) Other 131,207 44,464 Net cashprovidedbyoperatingactivities Income taxespaid Other Other (2,596) (1,322) 4,832 2,471 Interest paid Interest anddividendsreceived netre 8 (389) (15,004) 3,315 14,486 1,728 480 (389) 7,045 (142) (2,160) 541 (741) (266) (114) (20,807) 2,984 — (2,521) 1,816 (474) 1,583 (1,497) (4,204) (11,980) (452) (1,711) Bonuses todirectorsandstatutoryauditors 2,868 — Advance paymentsreceived 204 Long-term accountspayable Accounts payable—other — 169 Other receivables 12,960 Accounts payable—trade — 480 (141) Inventories 4,049 Recoverable accountsunderproductionsharing — Recovery ofrecoverableaccountsunderproductionsharing 123 Accounts receivable Gain onsalesofminingrights Equity in(earnings)lossesofaffiliates Foreign exchangeloss(gain) Interest expense ¥258,632 Interest anddividendincome Provision forsiterestorationanddecommissioningcosts ¥94,773 Provision forlossesondevelopmentactivities Provision foraccruedretirementbenefits Provision forallowance(reversalof)recoverableaccounts Provision forallowancedoubtfulaccounts Amortization ofgoodwill Depreciation andamortization Income beforeincometaxesandminorityinterests hne ntesoeo osldto Nt 3 ,9 — 3,992 changes inthescopeofconsolidation(Note13) oeaigepniue)(388 (7,721) 38,375 (13,828) 21,744 573 11,284 (operating expenditures) (capital expenditures) under productionsharing uttl9,4 296,803 98,348 Subtotal 042005 2004 81 311 (831) 55,894 — 1 5 (1) iloso e (Note3) Millions ofyen 1,6 $978,701 ¥ 114,968 0,4 $3,435,260 ¥ 403,540 2240 (2,148,634) (252,400) (931,395) (109,411) (1,231,744) (144,693) 2752 (2,362,577) (277,532) 1,4 1,857,836 218,240 9,4 4,203,175 493,747 2,7 1,092,832 128,375 2,3)(231,812) (27,231) 1,0)(114,131) (13,407) 1,6)(109,517) (12,865) (85,426) (10,035) 941420,797 49,431 155,784 18,300 01786,209 10,127 431122,168 14,351 970168,128 19,750 530,612 62,331 93,905 11,031 136,758 16,065 120 (10,215) (65,370) (1,200) (7,679) (14,004) (36,060) (1,645) (4,236) (77,390) (9,091) 380 (33,030) (3,880) 812 (68,971) (8,102) 137 (11,467) (1,347) 544 (46,769) (5,494) (15,774) (41,449) (1,853) (4,869) (57,530) (6,758) ,0 9,441 1,109 19,128 2,247 ,0 54,499 6,402 ,0 39,193 4,604 76,896 13,484 16,872 9,033 31,199 1,584 1,982 19,443 3,665 2,284 062006 2006 15 (1,319) (155) 5 8,105 952 7 2,316 272 7)(673) (79) 0255 30 —— —— —— —— —— —— —— —— —— 977 Thousands of U.S. dollars INPEX Holdings Inc. 55

Notes to Consolidated Financial Statements INPEX CORPORATION and Subsidiaries

1 BASIS OF PRESENTATION

INPEX CORPORATION (the “Company”) is primarily The accompanying consolidated financial statements engaged in the exploration, development and produc- have been prepared in accordance with accounting

tion of natural gas and crude oil. principles generally accepted in Japan, which may dif- INPEX The Company and its domestic subsidiaries main- fer in certain material respects from accounting princi- tain their accounting records and prepare their finan- ples generally accepted in the United States of cial statements in accordance with accounting America, and are compiled from the consolidated principles generally accepted in Japan, and its over- financial statements prepared by the Company as seas subsidiaries maintain their books of account in required by the Securities and Exchange Law of Japan. conformity with those of their countries of domicile.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of consolidation and accounting for of this change on the consolidated statement of opera- TEIKOKU investments in affiliates tions was to increase net sales by ¥22,295 million The accompanying consolidated financial statements ($189,793 thousand), operating income by ¥9,548 include the accounts of the Company and companies million ($81,280 thousand), income before income controlled directly or indirectly by the Company. taxes and minority interests by ¥9,788 million Companies over which the Company exercises signifi- ($83,323 thousand), and net income by ¥2,885 million cant influence in terms of their operating and financial ($24,559 thousand), for the year ended March 31, policies are included in the consolidated financial 2006 compared with the corresponding amounts statements on an equity basis. All significant inter- which would have been recorded if the previous company balances and transactions are eliminated in method had been followed. The excess of cost over consolidation. underlying net assets at fair value as of their dates DATA Most of the Company’s subsidiaries are consolidat- of acquisition is amortized over a period of less than ed on the basis of fiscal periods ending December 31, 20 years on a straight-line basis. In the year ended which differ from that of the Company; however, the March 31, 2005, the goodwill previously recorded was significant effect of the difference in fiscal periods has fully written off because the analysis of subsequent been properly adjusted in consolidation. The financial investment results of goodwill revealed that the goodwill statements of Japan Oil Development Co., Ltd., whose has no future value. fiscal periods ended December 31, were prepared for (b) Cash equivalents consolidation purpose as of the consolidated closing All highly liquid investments with a maturity of three date. months or less when purchased are considered cash Until the year ended March 31, 2005, INPEX equivalents. Southwest Caspian Sea, Ltd. and INPEX North Caspian (c) Foreign currency translation Sea, Ltd. were consolidated on the basis of fiscal peri- Monetary assets and liabilities denominated in foreign ods ended December 31, which differ from that of the currencies are translated into yen at the exchange Company. Commencing in the year ended March 31, rates prevailing at the balance sheet date. All revenues 2006, however, due to the increase in their materiality, and expenses associated with foreign currencies are their financial statements prepared for consolidation translated at the rates of exchange prevailing when purpose as of the consolidation closing date have been such transactions were made. The resulting exchange used. Accordingly, the consolidated operating results gain or loss is credited or charged to income. for the year ended March 31, 2006 included operating The revenue and expense accounts of the overseas results for 15 months from January 1, 2005 to March 31, subsidiaries are translated into yen at the rates of 2006 for those consolidated subsidiaries. The effect DATA TEIKOKU INPEX 56 NE odnsInc. Holdings INPEX released fromthisaccount. (i.e., acostrecoveryportionof theinvestments)is corresponding tothepurchasecostsofproducts crude oilinaccordancewiththecontract,anamount tract. WhentheCompanyreceivesnaturalgasand are recoverableunderthetermsofrelevantcon- accounts underproductionsharing”solongasthey (buyback arrangement)arerecordedas“Recoverable production sharingcontractandaservice ration, developmentandproductionphasesundera Cash investmentsmadebytheCompanyduringexplo- (g) Recoverable accountsunderproductionsharing tomers whichareexperiencingfinancialdifficulties. by referencetospecificdoubtfulreceivablesfromcus- plus anestimateofuncollectibleamountsdetermined ence ofbaddebtwithrespecttoordinaryreceivables, an amountdeterminedbasedonthehistoricalexperi- The allowancefordoubtfulreceivablesisprovidedat (f) Allowancefordoubtfulaccounts average method. Inventories aremainlystatedatcostdeterminedbythe (e) Inventories average method. Cost ofsecuritiessoldisdeterminedbythemoving out adeterminablemarketvaluearestatedatcost. directly inshareholders’equity.Othersecuritieswith- or loss,netoftheapplicableincometaxes,included fair valuewithanychangesinunrealizedholdinggain with adeterminablemarketvaluearemainlystatedat are allclassifiedasothersecurities.Othersecurities Securities heldbytheCompanyanditssubsidiaries gories: trading,held-to-maturityorothersecurities. In general,securitiesareclassifiedintothreecate- (d) Securities solidated financialstatements. equity andminorityinterestsintheaccompanyingcon- ments arepresentedascomponentsofshareholders’ at theirhistoricalexchangerates.Translationadjust- The componentsofshareholders’equityaretranslated rates ofexchangeineffectatthebalancesheetdate. ance sheetaccountsarealsotranslatedintoyenatthe for thecomponentsofshareholders’equity,bal- exchange ineffectatthebalancesheetdate.Except and relatedallowance vided attheamountwhichwould berequiredto mination occurs. length ofservice,andtheconditionsunderwhichter- determined byreferencetotheirbasicratesofpay, substantially allemployees,theamountsofwhichare and/or multi-employerpensionfundplans,covering defined benefitplans,i.e.,lump-sumpaymentplans The Companyandmostofitssubsidiarieshave (k) Accruedretirementbenefits straight-line method. amortized overaperiodoffiveyears. tion method. tized bytheunit-of-productionmethod. acquired andthoseattheproductionstageareamor- stage arefullyamortizedintheyearsuchrights Exploration anddevelopmentrightsattheexploration (j) Intangiblefixedassets useful livesoftherespectiveassets. straight-line method,atratesbasedontheestimated 1998, onwhichdepreciationiscomputedbythe except forthebuildingsacquiredonandafterApril1, mined primarilybythedeclining-balancemethod, the unit-of-productionmethod. Depreciation ofminingfacilitiesismainlycomputedby (i) Tangiblefixedassets net assetsoftheinvestees. ration companiesatanestimatedamountbasedonthe ed forfuturepotentiallossesoninvestmentsinexplo- The allowanceforinvestmentsinexplorationisprovid- (h) Allowanceforinvestmentsinexploration of theinvestmentineachrespectiveproject. amount basedonanassessmentoftherecoverability commercial oilandgas.Thisallowanceisstatedatan sharing contractsarisingfromthefailuretodiscover made duringtheexplorationphaseunderproduction sharing isprovidedforprobablelossesoninvestments allowance forrecoverableaccountsunderproduction where commercialoilorgasisdiscovered,an Accrued retirementbenefitsforemployees arepro- Other intangiblefixedassetsareamortizedbythe Capitalized computersoftwarecostsarebeing Mining rightsareamortizedbytheunit-of-produc- Depreciation ofothertangiblefixedassetsisdeter- Because theseinvestmentsarerecoverableonly INPEX Holdings Inc. 57

paid if all active employees voluntarily terminated their changes in the situation of projects such as delay in employment as of the balance sheet date. development. In addition, directors and statutory auditors of the (n) Leases Company and certain consolidated subsidiaries are Non-cancelable leases are primarily accounted for as customarily entitled to lump-sum payments under their operating leases except that lease agreements which INPEX respective unfunded retirement benefits plans. The stipulate the transfer of ownership of the leased assets provision for retirement benefits for these officers has to the lessee are accounted for as finance leases. been made at an estimated amount. (o) Research and development expenses (l) Liabilities for site restoration and Research and development expenses are charged to decommissioning costs income as incurred. Liabilities for site restoration and decommissioning (p) Income taxes costs are provided for expected future costs for decom- Deferred tax assets and liabilities are determined missioning oil and gas production facilities, related based on the differences between financial reporting pipelines and wells. and the tax bases of the assets and liabilities and are Until the year ended March 31, 2005, the cost of

measured using the enacted tax rates and laws which TEIKOKU decommissioning oil and gas production facilities, will be in effect when the differences are expected to related pipelines and wells was recognized as expense reverse. on a cash basis. Effective the year ended March 31, 2006, the Company changed its accounting policy to (q) Appropriation of retained earnings recognize liabilities for the estimated amount of future Under the Commercial Code of Japan, the appropria- decommissioning costs because such costs estimated tion of retained earnings with respect to a given finan- based on the future decommissioning plans are cial period is made by resolution of the shareholders at expected to be material. The effect of this change was a general meeting to be held subsequent to the close to decrease income before income taxes and minority of such financial period. The accounts for that period interests by ¥1,584 million ($13,484 thousand). do not, therefore, reflect such appropriations. See

Notes 7 and 15. DATA (m) Liabilities for losses on development activities Liabilities for losses on development activities are provid- (r) Adoption of new accounting standard ed for provable losses on oil and natural gas develop- Effective April 1, 2005, the Company has adopted a ment activities individually estimated for each project. new accounting standard for the impairment of The Company commenced to record such liabilities fixed assets. effective the year ended March 31, 2006, considering

3 U.S. DOLLAR AMOUNTS

The translation of yen amounts into U.S. dollar on March 31, 2006. This translation should not be amounts is included solely for convenience, as a mat- construed as a representation that yen have been, ter of arithmetic computation only, at ¥117.47 = could have been, or could in the future be, converted US$1.00, the approximate rate of exchange in effect into U.S. dollars at the above or any other rate. DATA TEIKOKU INPEX 58 NE odnsInc. Holdings INPEX 4 SECURITIES ano ae 3 — 2005 — — — — 63 2005 ¥23,939 2004 ¥24,391 Year endedMarch31, c) The componentsofothersecuritieswithoutadeterminablemarketvalueat March31,2005and2006are Loss onsales Gain onsales Proceeds fromsales Year endedMarch31, b) InformationregardingsalesofsecuritiesclassifiedasotherfortheyearsendedMarch31,2004, value Total Subtotal cost ¥749 ¥94,280¥95,029 (19) 768 17,26617,247 77,782 77,014 Securities whosefairvalue March 31,2006 value Total Subtotal cost Securities whoseacquisitioncostexceeds Subtotal Securities whosefairvalueexceeds March 31,2005 a) Information regardingothersecuritieswithdeterminablemarketvalueasofMarch31,2005and2006 oa ¥23,493 *An allowanceisprovidedforinvestments inexplorationcompaniesatanestimatedamountbasedonthefinancialpositionof th Total Other securities: Securities whoseacquisitioncost Subtotal their acquisitioncost: their fairvalue: exceeds theiracquisitioncost: exceeds theirfairvalue: Debt securities Stock Debt securities (19) Other 17,247 17,266 ¥105 300 ¥392 76,527 ¥287 76,227 Debt securities Other Debt securities Stock nitdscrte*¥23,493 Unlisted securities* summarized asfollows: is asfollows: 2005 and2006isasfollows: 2163¥0,4 ¥324 $,0,2 17366 $(27,786) $1,801,422 $1,773,636 ¥(3,264) ¥211,613 ¥208,349 1,0 ¥ 217 ,8 $ 1945 8,7 $19,409 $188,874 $169,465 ¥2,280 ¥22,187 ¥ 19,907 custo arigunrealized Carrying Acquisition custo ariguraie custo arigunrealized Carrying Acquisition unrealized Carrying Acquisition 7,9 6,7 (,1)1411114824 (52,907) 1,481,161 1,428,254 (6,215) 173,992 167,777 7,9 6,7 (,1)1411114824(52,907) 1,481,161 1,428,254 (6,215) 173,992 167,777 7241,4 3 1650 4,1 272 146,812 146,540 32 17,214 17,246 7614,7 ,5 2,6 4,8 25,121 345,382 320,261 2,951 40,572 37,621 0 ,3 3 ,5 ,9 5,440 9,696 4,256 639 1,139 500 0 6 363 863 500 Millions ofyen iloso e ThousandsofU.S.dollars Millions ofyen gains (losses) gains (losses) Gross rs Gross Gross iloso e U.S.dollars Millions ofyen U.S.dollars Millions ofyen otvalue cost ¥20,547 $174,913 ¥27,528 $234,341 ¥27,528 $234,341 062006 2006 2006 2006 4 1,200 141 e investees. Thousands of Thousands of gains (losses) INPEX Holdings Inc. 59

d) The redemption schedule for securities with maturity dates classified as other securities at March 31, 2006 is as follows: Millions of yen Thousands of U.S. dollars More than More than More than 1 5 years More than 1 5 years 1 year or year but less but less than More than 1 year or year but less but less than More than March 31, 2006 less than 5 years 10 years 10 years less than 5 years 10 years 10 years INPEX

Debt securities: Public bonds ¥17,500 ¥80,441 ¥1,946 ¥81,118 $148,974 $684,779 $16,566 $690,542 Corporate bonds 4,018 — — — 34,205 — — — Total ¥21,518 ¥80,441 ¥1,946 ¥81,118 $183,179 $684,779 $16,566 $690,542

5 LONG-TERM DEBT

Long-term debt at March 31, 2005 and 2006 consisted of the following: Thousands of Millions of yen U.S. dollars TEIKOKU March 31, 2005 2006 2006

Loans from banks and others, at interest rates ranging from 1.420% to 5.880%, due through 2019: ¥177,867 ¥220,293 $1,875,313 Less: Current portion 2,263 13,756 117,102 ¥175,604 ¥206,537 $1,758,211

Assets pledged at March 31, 2005 and 2006 were as follows: Thousands of Millions of yen U.S. dollars March 31, 2005 2006 2006

Other current assets (restricted cash) ¥ 8,200 ¥ 9,400 $ 80,020 DATA Investment securities 2,636 5,103 43,441 Total ¥10,836 ¥14,503 $123,461

The above assets were pledged against the following liabilities: Thousands of Millions of yen U.S. dollars March 31, 2005 2006 2006

Long-term debt ¥92,597 ¥94,070 $800,800 Guarantee obligation 8,462 7,663 65,234

The aggregate annual maturities of long-term borrowings subsequent to March 31, 2006 are summarized as follows: Thousands of Year ending March 31, Millions of yen U.S. dollars

2007 ¥ 13,756 $ 117,102 2008 43,594 371,107 2009 14,096 119,997 2010 14,096 119,997 2011 14,096 119,997 2012 and thereafter ¥120,655 $1,027,113 Total ¥220,293 $1,875,313 DATA TEIKOKU INPEX 60 NE odnsInc. Holdings INPEX 6 INCOME TAXES oa eerdtxast 9,244 (76,712) Deferred taxliabilities: Total deferredtaxassets Valuation allowance 70.6% 63.6% 36.2% 2005 Deferred taxassets: March 31, 36.2% 2004 Effective taxrates Effect of: Statutory taxrate Year endedMarch31, of approximately36.2%in2004,2005and2006. which, intheaggregate,resultedastatutorytaxrate are subjecttoanumberoftaxesbasedonincome The Companyanditsdomesticconsolidatedsubsidiaries e eerdtxlaiiis¥25,611 34,855 Net deferredtaxliabilities Total deferredtaxliabilities oa rs eerdtxast 85,956 Total grossdeferredtaxassets cre eieetbnft 726 16,248 13,038 1,012 3,277 Translation differencesofassetandliabilitiesdenominated Accrued retirementbenefits Accumulated amortizationoftangiblefixedassets Net operatingloss 7,123 Foreign taxespayable Allowance forinvestmentsinexploration Recoverable accountsunderproductionsharing(Foreigntaxes) oeg ae 26,014 Translation differencesofassetandliabilitiesdenominated Foreign taxes 4,543 ¥28,077 70.4 (15.3) (0.6) 54.0 (4.4) — Accounts payable—other Loss onrevaluationofland 3.3 (29.5) Investments inrelatedparties (0.6) (19.4) — 0.1 0.7 — Operating lossesusedduringthisfiscalyear Adjustment ofdeductedamountsforeigntaxes Equity inearningsofaffiliates Foreign taxes Foreign taxcredits Change invaluationallowance Permanent differences te 2.70.4 Other te 3,792 5,180 Other Other nfrincrece 6,732 in foreigncurrencies nfrincrece ,4 — — 5,049 in foreigncurrencies The significantcomponentsofdeferredtaxassetsandliabilitiesatMarch31,20052006wereasfollows: for thefollowingreasons: 2004, 2005and2006differfromthestatutorytaxrate statements ofincomefortheyearsendedMarch31, The effectivetaxratesreflectedintheconsolidated 2005 — iloso e U.S.dollars Millions ofyen 281 $279,654 ¥ 32,851 167$99,319 ¥ 11,667 7,7)(676,530) (79,472) 317196,706 23,107 10,988 93,539 24,076 204,954 16,041 136,554 27,708 235,873 95,513 813,084 ,3 11,399 1,339 3,622 30,833 45,807 1,913 16,285 5,381 ,6 61,829 7,263 4,543 38,674 3,632 30,919 3,692 31,429 062006 2006 814 6,929 Thousands of (17.5) (16.2) 74.0% 71.7 36.2% (3.5) (0.3) (0.1) 3.6 0.1 2006 INPEX Holdings Inc. 61

7 SHAREHOLDERS’ EQUITY

As of March 31, 2006, the total number of the provides that an amount equal to at least 10% of the Company’s shares issued consisted of 1,919,831.31 amount to be disbursed as distributions of earnings be

shares of common stock and one special class share. appropriated to the legal reserve until the total of such INPEX The special class share has no voting rights at the reserve and the additional paid-in capital account common shareholders meeting, but the ownership of equals 25% of the capital stock account. The legal the special class share gives its holder a veto right over reserve amounted to ¥7,365 million and ¥7,365 million the following certain important matters by imposing ($62,697 thousand), respectively, at March 31, 2005 the requirement to obtain a class vote. However, and 2006. requirements stipulated in the Articles of Incorporation The Code provides that neither additional paid-in are necessary in the case of the appointment and capital nor the legal reserve is available for dividends, removal of directors, disposition of important assets or but both may be used to reduce or eliminate a deficit the exercise of the veto; by resolution of the shareholders or may be transferred • Appointment and removal of directors to capital stock by resolution of the Board of Directors. TEIKOKU • Disposition of all or part of the material assets The Code also provides that if the total amount of addi- • Amendments to the Article of Incorporation with tional paid-in capital and the legal reserve exceeds respect to (i) the purpose of the Company’s business 25% of the amount of capital stock, the excess may be and (ii) the granting of voting rights to the Company’s distributed to the shareholders either as a return of shares other than common stock capital or as dividends, subject to the approval of the • Mergers, share exchange or share transfer shareholders. • Capital reduction The new Corporation Law of Japan (the “Law”), • Dissolution which superseded most of the provisions of the Code, The special class share will be redeemed upon went into effect on May 1, 2006. The Law stipulates request by the relevant special class shareholder. requirements on distribution of earnings which are

similar to those of the Code. Under the Law, however, DATA In accordance with the Commercial Code of Japan (the such distributions can be made at any time by resolu- “Code”), the Company has provided a legal reserve, tion of shareholders, or the Board of Directors if certain which is included in retained earnings. The Code conditions are met.

8 AMOUNTS PER SHARE

Yen U.S. dollars Year ended March 31, 2004 2005 2006 2006

Net income ¥ 58,838.76 ¥ 40,255.92 ¥ 53,814.47 $ 458.11 Cash dividends 10,000.00 4,000.00 5,500.00 46.82 Net assets 471,826.00 214,163.98 262,966.53 2,238.58

Net income per share is computed based on the net based on the net assets available for distribution to the income available for distribution to shareholders of shareholders and the number of shares of common common stock and the weighted-average number of stock outstanding at the year end. shares of common stock outstanding during the year. The Company made a three-for-one stock split of Cash dividends per share represent the cash divi- the Company’s common stock effective May 18, 2004 dends declared as applicable to the respective years. that resulted in an increase of 1,279,888.50 shares of Amounts per share of net assets are computed the Company’s common stock. DATA TEIKOKU INPEX 62 NE odnsInc. Holdings INPEX 12 11 10 9 CONTINGENT LIABILITIES RETIREMENT BENEFITEXPENSES RESEARCH ANDDEVELOPMENTEXPENSES DERIVATIVES 2004 wouldhavebeenasfollows: ¥9,323 million($79,365thousand). indebtedness ofaffiliatesintheaggregateamount subsidiaries werecontingentlyliableasguarantorsof At March31,2006,theCompanyanditsconsolidated to ¥103million,¥220millionand¥308($2,622 Retirement benefitexpensesforemployeesamounted million, ¥53millionand¥51($434thousand) general andadministrativeexpensesamountedto¥56 Research anddevelopmentexpensesincludedinselling, derivative transactions,butanysuchlosswouldnotbe nonperformancebythe counterpartiestothose of The Companyisexposedtocreditriskintheevent (b) Creditrisk assets andliabilitiesatmarketrisk. amounts fortransactionsarelimitedtoof tive transactionfortradingpurposes.Also,Nominal currencies. TheCompanydoesnotengageinderiva- from itsassetsandliabilitiesdenominatedinforeign order toreduceitsexposureforeigncurrencyrisk has enteredintoforwardforeignexchangecontractsin During theyearendedMarch31,2006,Company (a) Hedgingpolicies Net assets Cash dividends Net income Year endedMarch31, Had thisstocksplitbeenmadeasofApril1,2003,amountspershareinformationfortheyearendedMarch31 December 31,2005. amount of¥7,207million($61,040 thousand)at indebtedness ofBTCPipelineProjectFinanceinthe ed subsidiary,wascontingentlyliableasguarantorof and 2006,respectively. thousand) fortheyearsendedMarch31,2004,2005 respectively. for theyearsendedMarch31,2004,2005and2006, March 31,2005or2006. No derivativespositionsremainedoutstandingat (d) Fairvalueofderivatives basis. regular transactions areobtainedfromcounterpartiesona director inchargeontimelybasisandconfirmationsof based oninternalrules.Alltransactionsarereportedto The executionandcontrolofderivativetransactionsare (c) Riskmanagement with highcreditratings. only withfinancialinstitutionsortradingcompanies material becausetheCompanyentersintotransactions In addition,INPEXBTCPipeline,Ltd.aconsolidat- 19,612.92 ¥ 157,275.33 3,333.33 2004 Yen INPEX Holdings Inc. 63

13 SUPPLEMENTARY CASH FLOW INFORMATION

a) Following are the assets and liabilities of INPEX Jawa and its subsidiary which became consolidated subsidiaries during the year ended March 31, 2004 following the acquisition of their stock: INPEX March 31, 2004 Millions of yen

Current assets ¥ 13,916 Long-term assets 2,539 Current liabilities (34) Minority interests (2,526) Minority interests in consolidated subsidiaries (5,126) Purchase of stock 8,769 Cash and cash equivalents held by subsidiaries (12,761) Net proceeds ¥ 3,992

b) Summary of the increase in assets and liabilities following the acquisition of interests by INPEX Southwest TEIKOKU Caspian Sea, Ltd. during the year ended March 31, 2004 is as follows:

March 31, 2004 Millions of yen

Current assets ¥ 5 Long-term liabilities 164,494 Current liabilities (988) Purchase of mining rights ¥(163,511)

c) Summary of the decrease in assets and liabilities following the sales of interests by INPEX Sahul, Ltd. during the year ended March 31, 2004 is as follows: DATA March 31, 2004 Millions of yen

Current assets ¥ 21 Long-term liabilities 1,737 Current liabilities (203) Net assets of business sold 1,555 Gain on sales of mining rights 1,497 Proceeds from sales of mining rights ¥3,052

d) Following are the assets and liabilities of Japan Oil Development Co., Ltd. which became a consolidated subsidiary during the year ended March 31, 2005 due to a share exchange transaction:

March 31, 2005 Millions of yen

Current assets ¥ 79,502 Long-term assets 53,682 Total assets 133,184 Current liabilities 46,146 Long-term liabilities 24,635 Total liabilities ¥ 70,781

e) Significant non-cash transaction: Increase in paid-in capital in the amount of ¥62,403 million due to the share exchange transaction during the year ended March 31, 2005. DATA TEIKOKU INPEX 64 NE odnsInc. Holdings INPEX 14 SEGMENT INFORMATION ereddMrh3,20 cai a I b c te d oa lmntosConsolidated Eliminations Total (d) Other:Angola,Brazil,Libya (c) MiddleEast:UAE,Iran (b) NIS:Kazakhstan,Azerbaijan (a) Asia-Oceania:Indonesia,Australia,East Timor Other(d) (c) Total assets Operating income 478,587 — Operating expenses (21,314) NIS(b) 209,924 Total sales (21,353) ¥779,228 ¥135,408 499,901 Intergroup salesandtransfers (21,314) Oceania(a) ¥643,820 231,277 Sales tothirdparties — ¥4,228 21,314 ¥268,663 Year endedMarch31,2006 3 ¥39 ¥179,413 ¥223,532 ¥268,624 Consolidated ¥236,647 Eliminations 191,816 — ¥(3) 20,900 Total 63,977 ¥127,839 (d) Other:Angola,Brazil ¥4,428 287,185 16,472 ¥136,360 (c) MiddleEast:UAE,Iran ¥478,587 414 ¥— (b) NIS:Kazakhstan,Azerbaijan 150,825 ¥478,587 — (a) Asia-Oceania:Indonesia,Australia,EastTimor Other(d) 218,831 ¥525,298 (6,506) (c) 20,900 Total assets ¥112,864 ¥— 124,955 ¥412,434 (6,665) Operating income ¥191,402 (6,506) — 225,337 ¥— Operating expenses ¥93,876 ¥6,412 ¥287,185 ¥159 NIS(b) 131,620 ¥191,697 7,409 Total sales ¥214,325 6,506 ¥93,717 Intergroup salesandtransfers 6,506 5,440 Oceania(a) Consolidated ¥1,969 Eliminations Sales tothirdparties ¥1,752 4,754 211,422 — ¥89,996 Total Year endedMarch31,2005 ¥218,831 121,426 ¥— 6,506 ¥218,831 (c) (c) Other:UAE,Iran ¥7,409 — (b) NIS:Kazakhstan,Azerbaijan ¥— ¥211,422 (a) Asia-Oceania:Indonesia,Australia,EastTimor NIS(b) Total assets Oceania(a) Operating income Operating expenses Total sales Intergroup salesandtransfers Sales tothirdparties Year endedMarch31,2004 more than90%oftheconsolidatedtotalsforyears assets oftheoilandnaturalgasbusinessconstituted other areas.Asnetsales,operatingincomeandtotal Middle East,Oceania,theCaspianSeaandcertain duction ofnaturalgasandcrudeoilinIndonesia,the engaged inthejointexploration,developmentandpro- The Companyanditssubsidiariesareprimarily 1277 2,6 ¥1,0 ¥ 4 ¥2,4 ¥ 15 ¥426,651 ¥105 ¥426,546 ¥192,909 ¥972,438 ¥779,529 ¥(4) ¥4,744 ¥244,575 ¥290,996¥239,214 ¥704,235 ¥210,206 ¥ — ¥23,567 ¥192,777 ¥704,235 ¥— ¥300,944 ¥63,767 ¥339,524 4,4 0209,3 7,8 (105)277,584 277,689 704,235 4 — 90,738 40,200 704,235 146,747 — 339,524 63,767 300,944 sa MiddleEast Asia- MiddleEast Asia- ————— — ———— sa Other Asia- follows: March 31,2004,2005and2006issummarizedas Company anditssubsidiariesfortheyearsended of businesssegmentinformationhasbeenomitted. ended March31,2004,2005and2006,thedisclosure The geographicalsegmentinformationforthe Millions ofyen Millions ofyen Millions ofyen INPEX Holdings Inc. 65

Thousands of U.S. dollars Asia- Middle East Year ended March 31, 2006 Oceania (a) NIS (b) (c) Other (d) Total Eliminations Consolidated

Sales to third parties $2,890,304 $ 542,836 $2,561,880 $ — $5,995,020 $ — $5,995,020 Intergroup sales and transfers ————— — — Total sales 2,890,304 542,836 2,561,880 — 5,995,020 — 5,995,020 INPEX Operating expenses 1,249,230 342,215 772,436 33 2,363,914 (894) 2,363,020 Operating income $1,641,074 $ 200,621 $1,789,444 $ (33) $3,631,106 $ 894 $3,632,000 Total assets $2,082,021 $2,477,194 $2,036,384 $40,385 $6,635,984 $1,642,198 $8,278,182

(a) Asia-Oceania: Indonesia, Australia, East Timor (b) NIS: Kazakhstan, Azerbaijan (c) Middle East: UAE, Iran (d) Other: Angola, Brazil, Libya

The geographical segment information for the Company and its subsidiaries has been reflected in the regions based on the location of operations. Since INPEX Trading, Ltd., a subsidiary of the Company, which is engaged in purchase and sale of crude oil price of the Company and consolidated subsidiaries, does not deal in oil productions activities, operating results of INPEX Trading, Ltd. had been reflected in Asia-Oceania segment where substantially all of its oil for trading are provided until the year ended March 31, 2005. Effective April 1, 2005, operating results and assets of INPEX Trading, Ltd. have been TEIKOKU reflected in the segments based on the location of the Company and consolidated subsidiaries which INPEX Trading, Ltd. purchase the crude oil. As a result, there were no intercompany sales and transfers between segments since all intercompany sales are recorded within the same segment. The effect of this change on the geographical segment information for the years ended March 31, 2005 and 2004 was immaterial.

Overseas sales Overseas sales, which include sales (other than exports to Japan) of its overseas subsidiaries, for the years ended March 31, 2004, 2005 and 2006 are summarized as follows:

Millions of yen Year ended March 31, 2004 Asia (a) Other (b) Total

Overseas sales ¥58,089 ¥6,257 ¥ 64,346 DATA Consolidated net sales 218,831 Overseas sales as a percentage of consolidated net sales 26.5% 2.9% 29.4%

(a) Asia: Korea, Taiwan, Indonesia, Singapore (b) Other: Australia

Millions of yen Year ended March 31, 2005 Asia (a) Other (b) Total

Overseas sales ¥167,741 ¥11,299 ¥179,040 Consolidated net sales 478,587 Overseas sales as a percentage of consolidated net sales 35.0% 2.4% 37.4%

(a) Asia: Korea, Taiwan, Indonesia, Singapore, Thailand, China (b) Other: Australia

Millions of yen Thousands of U.S. dollars Year ended March 31, 2006 Asia (a) Other (b) Total Asia (a) Other (b) Total

Overseas sales ¥249,027 ¥45,961 ¥294,988 $2,119,920 $391,257 $2,511,177 Consolidated net sales 704,235 5,995,020 Overseas sales as a percentage of consolidated net sales 35.4% 6.5% 41.9% 35.4% 6.5% 41.9%

(a) Asia: Korea, Taiwan, Indonesia, Singapore, Thailand, China, Malaysia (b) Other: Australia, Italy DATA TEIKOKU INPEX 66 NE odnsInc. Holdings INPEX 15 SUBSEQUENT EVENTS aia:¥30billion Managementandadministrationofsubsidiariesgroupcompanies the shareholdersheldonJune27,2006. nying consolidatedfinancialstatementsfortheyearendedMarch31,2006,wereapprovedatageneralmeetingof (b) ThefollowingappropriationsofretainedearningstheCompany,whichhavenotbeenreflectedinaccompa- April3,2006 INPEXHoldings Inc. NaokiKuroda Representative DirectorandPresident: 4-1-18Ebisu,Shibuya-ku,Tokyo,150-0013,Japan Capital: Main business: Date ofestablishment: Company’s headquarters: Company’s name: (As ofApril3,2006) An overviewoftheparentcompanyissummarizedasfollows: extraordinary shareholders’meetingsandaSpecial Company throughaStockTransfer”attheirrespective 2005. Afterapprovalof“EstablishmenttheParent signed ajointstocktransferagreementonNovember5, agreement ontheintegrationoftwocompaniesand (a) TheCompanyandTeikokuOilCo.,Ltd.reached Bonuses todirectorsandstatutoryauditors Cash dividends(¥5,500=$46.82pershare) Holdings Inc. Company becameawholly-ownedsubsidiaryofINPEX parent companyonApril3,2006.Accordingly,the 2006, INPEXHoldingsInc.wasestablishedasthesole Class Shareholder’smeeting,allheldonJanuary31, iloso e ThousandsofU.S.dollars Millions ofyen 1,5 $89,887 ¥10,559 8834 98 INPEX Holdings Inc. 67

Report of Independent Auditors INPEX

Report of Independent Auditors

The Board of Directors and Shareholders INPEX CORPORATION

We have audited the accompanying consolidated balance sheets of INPEX CORPORATION and subsidiaries as of March 31, 2005 and 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2006, all expressed in yen. These financial statements are the responsibility of

the Company’s management. Our responsibility is to express an opinion on these financial TEIKOKU statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of INPEX CORPORATION and subsidiaries at DATA March 31, 2005 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2006 in conformity with accounting principles generally accepted in Japan.

Supplemental Information

1. As described in Note 2(1), effective April 1, 2005, the Company changed its method of accounting for site restoration and decommissioning costs. 2. As described in Note 15(a), on April 3, 2006, the Company became a wholly-owned subsidiary of INPEX Holdings Inc., which was established in accordance with a joint stock transfer agreement between the Company and Teikoku Oil Co., Ltd.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2006 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 3 to the consolidated financial statements.

Tokyo, Japan June 27, 2006 INPEX Holdings Inc. 69

TEIKOKU Financial Section

+ INPEX TEIKOKU

Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations 70 Consolidated Balance Sheets 74

Consolidated Statements of Income 76 DATA Consolidated Statements of Shareholders’ Equity 77 Consolidated Statements of Cash Flows 78 Notes to Consolidated Financial Statements 79 Report of Independent Auditors 93

* Consolidated Balance Sheets 94 * Consolidated Statements of Income 95 * Consolidated Statements of Shareholders’ Equity 96 * Consolidated Statements of Cash Flows 97

* Due to the change of Teikoku Oil’s accounting period to reflect the fiscal year ended March 31, 2006, financial information was readjusted using the Company’s quarterly earnings report for January 1, 2006 through March 31, 2006. The translation of yen amounts into U.S. dollar amounts is included solely for convenience and has been made, as a matter of arithmetical computation only, at the rate of ¥117=U.S.$1.00, the approximate rate of exchange on March 31, 2006. The translation should not be construed as a representation that yen have been, could have been, or could in the future be, converted into U.S. dollar at that or any other rate. DATA TEIKOKU INPEX 70 NE odnsInc. Holdings INPEX Financial ConditionandResultsofOperations Management’s DiscussionandAnalysisof Analysis ofResultsOperations December 31,2005.Therewas nostockpurchase results ofoperationsfromthefiscalyearended 2004, thesetransactionsimpactedconsolidated Congo) stockwasthefiscalyear-endofDecember31, Teikoku Oil(Sanvi-Guere)and(D.R. date forthepurchaseofTeikokuOil(Venezuela), the previousfiscalyear.Aseffectiveaccounting this subsidiarywasreflectedinthesecondhalfof poses, meaningthatthefinancialcontributionof accounting year(July1,2004)forpur- day ofthesecondhalfTeikokuOil’sfiscal Petroleum Developmentwasconsideredasthefirst on consolidatedresultsisdescribedasfollows. year. Duetothetimingofthesepurchases,impact and TeikokuOil(D.R.Congo)inthepreviousfiscal Teikoku Oil(Venezuela),(Sanvi-Guere) Oil CorporationinEgyptianPetroleumDevelopment, Teikoku OilacquiredstocksheldbyJapanNational Owned byJapanNationalOilCorporation Impact onResultsfromthePurchaseofStock respectively. (Venezuela) andthecompletionofliquidation, of consolidationduetothemergerwithTeikokuOil Teikoku OilSuezKEZwereexcludedfromthescope Ltd. Meanwhile,TeikokuOil(Sanvi-Guere)and Teikoku OilNileNQR,andLibyaUK Teikoku OilEcuador,SuezSOB, fiscal year). equity method(remainingthesameasprevious equity inoneaffiliatewasaccountedforunderthe dated subsidiariesfromthepreviousyear),while were fullyconsolidated(anincreaseoftwoconsoli- year endedDecember31,2005,27subsidiaries In termsofthescopeconsolidationforfiscal Scope ofConsolidation The purchasedateofthestockinEgyptian The newlyconsolidatedsubsidiariesincluded year underreview. from JapanNationalOilCorporationduringthefiscal for 43MMm agreements forthereactivation ofoilandgasfields including revenuesbasedontheoperatingservice statements fromthefiscalyearunderreview, project subsidiariesintheconsolidatedfinancial prices, contributedtotheresult. the Company’snaturalgas,duetohighcrudeoil expansion andshiftingdemandfromotherfuelsto October 2004,theCompany’seffortstowardsales of supplytoTokyoGas’Utsunomiyabranchin decrease insalesvolumeduetothediscontinuation MM m The salesvolumeofnaturalgasincreasedby743 (A) NaturalGas edged up¥88million(+4.0%)to¥2,310million. ¥98,406 million,whilesalesinOtherBusinesses Business grewby¥16,597million(+20.3%YoY)to By segment,consolidatedsalesintheOilandGas Net Sales ¥6,209 million(+66.9%)to¥15,485million. (+56.6%) to¥26,122million.Netincomeincreased taxes andminorityinterestssurged¥9,446million to ¥21,077million,whileincomebefore Operating incomejumped¥7,544million(+55.7%) ¥16,684 million(+19.9%YoY)to¥100,716million. Consolidated netsalesfortheperiodincreasedby Financial Results to 902MMm users accountingfor21MMm Sales bymajorcompanywereasfollows. value climbedby¥3,470millionto¥38,004million. Teikoku OilincludedthesalesofitsVenezuela Teikoku Oil’ssalesvolumegrewby64MMm 3 year onto1,685MMm 3 3 and directsalestofactoriesother , withcitygascompaniesaccounting 3 . Despitethe 3 , whilesales 3 INPEX Holdings Inc. 71

in Venezuela. Natural gas consolidated sales volume Overall sales in Other Oil and Gas Businesses during the fiscal year totaled 682 MM m3, and net improved by ¥213 million to ¥1,234 million from sales amounted to ¥2,075 million. the previous fiscal year, due to sales recorded in Consolidated average unit prices excluding other services and products including petroleum

Venezuela project subsidiaries declined by ¥0.85 product storage, inbound and outbound shipping, INPEX per cubic meters, reflecting a normal review of unit transportation, and instrument sales. pricing and larger growth in sales to large-volume users. In addition, as unit prices for Teikoku Oil are (D) Other Businesses fixed annually in individual contract negotiations with Other Businesses consist of real estate rental, man- users, there is no short-term impact from market or agement and transactions, civil engineering and exchange rate fluctuations. well drilling, and warehousing. Consolidated sales in this segment grew by ¥88 million to ¥2,310 million, (B) Oil primarily owing to an increase in orders received for Consolidated oil sales improved by 932 Mbbls to civil engineering. TEIKOKU 3,779 Mbbls, resulting in a sales value increase of ¥7,483 million to ¥17,702 million. Sales volume Operating Expenses and Operating Income was down by 702 Mbbls to 1,724 Mbbls due to a Cost of sales increased by ¥7,018 million to decrease in Teikoku Oil (D.R. Congo) tanker ship- ¥55,473 million, reflecting the cost of sales from the ments of two tankers to a total of five. Meanwhile, Venezuela project subsidiaries and increased pur- Egyptian Petroleum Development recorded a full chases of petroleum products and crude oil due to year of sales, recording an increase of 374 Mbbls to high crude oil prices. 726 Mbbls. Furthermore, sales volume of Exploration expenses decreased ¥242 million Venezuelan project subsidiaries, which were included from the previous fiscal year to ¥4,097 million. in the Company’s scope of consolidation from the Domestic exploration expenses excluding exploration DATA fiscal year under review, stood at 1,267 Mbbls. subsidies were down by ¥581 million to ¥2,904 mil- The average unit price per barrel sold was lion, and overseas exploration expenses for consoli- US$51.36 for Teikoku Oil (D.R. Congo), up US$15.74 dated subsidiaries rose ¥340 million to ¥1,193 from the previous fiscal year, US$29.35 for Egyptian million. Because exploration investment including Petroleum Development, up US$4.61, and US$35.64 geological surveys, geophysical surveys, test well per barrel for Venezuela project subsidiaries. drilling and other costs for oil and gas exploration involves a degree of risk, these costs are expensed (C) Other Oil and Gas Businesses in the accounting year that the work is initiated. Consolidated petroleum product sales volume Selling, general and administrative expenses climbed 28 Mkl to 621 Mkl. In addition to this, sales climbed ¥2,365 million to ¥20,068 million. This value grew year on year, increasing net sales by resulted from expenses for the Venezuela project ¥4,993 million to ¥38,365 million. Sales of LPG subsidiaries, which were recorded in the consolidat- grew by ¥323 million to ¥2,280 million, owing to ed financial statements, as well as an increase in an increase both in sales volume and sales price. depreciation expenses related to the Ryomo Line Sales of iodine rose ¥114 million to ¥818 million, and Iruma Line. due to increased selling prices despite a decline in As a result, operating income increased by sales volume. ¥7,544 million (+55.7%) to ¥21,077 million. DATA TEIKOKU INPEX 72 NE odnsInc. Holdings INPEX Analysis ofFinancialPosition pipelines andothercapitalexpenditures. struction inprogressduetothe constructionofnew ¥125,418 million,reflectinganincreaseincon- plant andequipmentclimbed¥11,198millionto market valueofinvestmentsecurities.Property, million, mainlyreflectinganincreaseinthecurrent receivables climbed¥28,180millionto¥97,602 increased netsales.Investmentsandlong-term marketable securitiesandaccountsreceivablefrom ¥58,586 million,primarilyduetoanincreasein Current assetsincreased¥12,928millionto year grewby¥53,254millionto¥293,767million. Total consolidatedassetsattheendoffiscal Balance SheetAnalysis to ¥26,122million. minority interestssurged¥9,446million(+56.6%) year underreview. cation losses fortwoidleassets(land),owingtotheappli- Additionally, therewas¥275millioninimpairment for theMoruyIIBlockinGulfofVenezuela. the previousfiscalyear)duetosuccessfulbid investment (a¥199millionreversalcomparedto increaseinallowanceforlossesonoverseas million from thefiscalyearunderreview,anda¥1,127 project subsidiariesintothescopeofconsolidation affiliates, ¥1,034 milliondeclineinequityearningsof investments insecurities.Meanwhile,therewasa this resultwerea¥3,430milliongainonsalesof previous fiscalyear.Theprincipalcomponentsof lion, anincreaseof¥1,903millioncomparedtothe minus non-operatingexpenses)totaled¥5,045mil- Net non-operatingincome(non-operating Other Non-OperatingandPretaxIncome As aresult,incomebeforetaxesand of assetimpairmentaccountingfromthefiscal reflecting theinclusionofVenezuela ration biddingroundintheBolivarian Republicof Company participatedinthesecond offshoreexplo- foundation bothinJapanandoverseas:The vigorously engagedinreinforcementofitsbusiness retained earnings. unrealizedholdinggainsonsecuritiesand in million to¥197,216million,reflectinganincrease for capitalexpendituresincludingnewpipelines. value ofinvestmentsecurities,andlong-termdebt tax liabilitiesalongwithincreasedcurrentmarket ¥94,229 million,owingtoanincreaseindeferred pipelines. increase indepreciationexpensesfortheCompany’s forms ofOffshoreIwakiPetroleumdespitean wells ofTeikokuOil(D.R.Congo)andoffshoreplat- reflecting adecreaseindepreciationexpensesfor down by¥1,198millionto¥8,962million,primarily production facilities.Depreciationexpenseswere including theShizuokaLine,andreinforcementof mainly duetoconstructionfornaturalgaspipelines review declinedby¥184millionto¥20,643million, Capital expendituresduringthefiscalyearunder Capital ExpendituresandDepreciation ¥6,209 million(+66.9%)to¥15,485million. overseas investment. reflecting anincreaseinallowanceforlosseson interests from TeikokuOiland(D.R.Congo). ¥10,086 million,owingtoanincreaseinrevenues Income taxesroseby¥2,726millionyearonto Corporate TaxesandNetIncomeforthePeriod During thefiscalyearunderreview,TeikokuOil Total shareholders’equityimproved¥31,280 Total liabilitiesclimbed¥21,804millionto As aresult,netincomefortheperiodjumped Adjustment forincometaxesandminority was upby¥845millionto¥264million, INPEX Holdings Inc. 73

Venezuela, and confirmed the successful bid of As described above, the net cash decrease in the Moruy II Block in the Gulf of Venezuela, while the fiscal year under review was the result of con- expanding new pipeline networks in Japan. In centrated capital expenditures. The Company response to this active fund demand, the Company believes that its cash flow position will improve as worked to improve the efficiency of funds available pipelines currently under construction commence INPEX within the Group, including the recovery of ¥3,000 operations and expand its market for natural gas. million from Offshore Iwaki Petroleum and ¥2,041 million from Teikoku Oil (D.R. Congo) in dividends. Financial Policies Nevertheless, the Company implemented debt financ- As an oil and gas development company, Teikoku ing of ¥14,860 million due to the concentration of Oil is working to expand and reproduce its domestic payments for capital expenditures. Consequently, and overseas reserves and will establish and long-term borrowings at the end of the fiscal year expand its infrastructure to efficiently produce and climbed ¥10,318 million to ¥23,847 million. market the reserves it acquires. The Company Based on these results, the equity ratio edged believes the salient characteristics of its business is TEIKOKU down to 67.1%, from 69.0% in the previous fiscal the length of time it takes from the initiation to com- year. Teikoku Oil regards this change to be within pletion of projects, while it foresees growing compe- the range of financial soundness. tition in the future between energy domains. In order to increase its competitiveness in the busi- Cash Flow Analysis ness environs where it operates, the Company Cash and cash equivalents at the end of the fiscal year believes it is important to build a solid financial rose ¥3,311 million year on year to ¥25,545 million. structure and maintain its financial soundness. Net cash from operating activities totaled a posi- In addition, in order to ensure its future ability tive ¥15,118 million for the fiscal year, while the to maintain exploration activities, the Company con- purchase of tangible fixed assets resulted in a net tinues to add to its reserves for exploration, while DATA cash outflow from investing activities of ¥20,287 also allocating funds to its allowance for losses on million. Consequently, these results combined for a overseas investments, accruals for the estimated free cash flow (the sum of cash flows in operating cost of abandoned wells and other reserves in order and investing activities) deficit of ¥5,169 million. to be well prepared for unavoidable future expenses. In addition, implementing long-term borrowings Items above that refer to future are based on the resulted in a net cash inflow in financing activities of Group’s own assessment as of the end of the period ¥7,845 million. under review. DATA TEIKOKU INPEX 74 NE odnsInc. Holdings INPEX Fiscal yearsendedDecember31,2004and2005 Teikoku OilCo.,Ltd.andConsolidatedSubsidiaries Consolidated BalanceSheets oa ses¥240,513 ¥ 11,212 114,220 See notestoconsolidatedfinancialstatements. Total assets Other assets Property, plantandequipment,net 69,422 Property, plantandequipment 45,658 Total investmentsandlong-termreceivables Investments andlong-termreceivables: Total currentassets Current assets: ASSETS netre Nt )5,514 Inventories (Note6) iedpst 1,681 1,651 22,234 ¥ Notes andaccountsreceivable: Marketable securities(Note5) Time deposits Cash andcashequivalents el 58,029 8,644 89,067 132,709 Machinery andequipment Wells Buildings andstructures Land osrcini rges11,743 712 Construction inprogress 2,193 68,381 (2,253) Other long-termreceivables Less: Allowanceforlossesonoverseasinvestments(Note7) Investments insecurities(Notes5,7and8) Other currentassets es cuuae ercain(185,974) Accumulateddepreciation Less: i n a netet 2,582 Oil andgasinvestments rd 12,377 16 Trade Unconsolidated subsidiariesandaffiliates es loac o obflrcials(10) Allowancefordoubtfulreceivables Less: (Note 8) : 300,194 12,383 66,127 2004 iloso e (Note3) Millions ofyen 9,6 2,489,551 $ 293,767 ¥ 216,483 $ 25,545 ¥ 1383 (1,642,992) (193,873) 2,1 1,062,864 125,418 3,8 1,171,093 138,189 1,9 2,705,864 319,292 597134,805 15,907 594134,864 15,914 218103,034 12,158 827,136 97,602 496,492 58,586 987761,331 492,983 89,837 58,172 447206,924 24,417 788,805 813,771 93,079 96,025 296 (24,966) (2,946) ,4 18,212 14,178 2,149 1,673 ,7 73,525 8,676 ,1 10,263 1,211 59,085 6,972 ,3 53,644 6,330 ,1 28,068 3,312 052005 2005 3110 13 6 (51) (6) Thousands of U.S. dollars INPEX Holdings Inc. 75

Thousands of U.S. dollars Millions of yen (Note 3) LIABILITIES AND SHAREHOLDERS’ EQUITY 2004 2005 2005

Current liabilities:

Short-term bank loans (Note 8) ¥ 575 ¥ 495 $ 4,195 INPEX Current portion of long-term debt (Note 8) 3,831 4,680 39,661 Notes and accounts payable: Unconsolidated subsidiaries and affiliates 65 151 1,280 Trade 2,420 2,854 24,186 Other 14,211 14,323 121,381 16,698 17,329 146,856 Accrued income taxes (Note 9) 2,834 2,905 24,619 Accrued expenses 1,781 2,075 17,585 Other current liabilities 1,718 1,513 12,822 Total current liabilities 27,439 28,998 245,746 TEIKOKU

Long-term liabilities: Long-term debt (Note 8) 13,529 23,847 202,093 Accrued retirement benefits for employees (Note 10) 6,466 6,491 55,008 Accrued estimated cost of abandonment of wells 9,611 10,229 86,686 Deferred tax liabilities (Note 9) 12,611 23,277 197,263 Other long-term liabilities 2,766 1,384 11,729 Total long-term liabilities 44,986 65,230 552,797 Minority interests in consolidated subsidiaries 2,150 2,320 19,661

Shareholders’ equity (Notes 11 and 17): DATA Common stock: Authorized—800,000,000 shares Issued —306,130,000 shares 19,579 19,579 165,924 Capital surplus 11,225 11,230 95,169 Retained earnings 114,999 127,688 1,082,102 Unrealized holding gain on securities, net of deferred income taxes 20,533 39,081 331,195 Translation adjustments 78 457 3,873 166,415 198,037 1,678,280 Less: Treasury stock, at cost; 978,622 shares in 2004 and 1,340,765 shares in 2005 (479) (820) (6,949) Total shareholders’ equity 165,936 197,216 1,671,322 Contingent liabilities (Note 15) Total liabilities and shareholders’ equity ¥240,513 ¥293,767 $2,489,551 DATA TEIKOKU INPEX 76 NE odnsInc. Holdings INPEX Fiscal yearsendedDecember31,2004and2005 Teikoku OilCo.,Ltd.andConsolidatedSubsidiaries Consolidated StatementsofIncome e noe¥9,276 ¥ See notestoconsolidatedfinancialstatements. Amounts pershare: (621) Net income Minority interestsinearningsofconsolidatedsubsidiaries 13,533 35,576 4,339 48,455 ¥84,032 17,703 Other income(expenses): Operating income Selling, generalandadministrativeexpenses(Note13) Exploration expenses Gross profit Cost ofsales Net sales noebfr noetxsadmnrt neet 16,676 Income taxes(Note9): Income beforeincometaxesandminorityinterests noebfr ioiyitrss9,897 Income beforeminorityinterests e noe¥30.22 ¥ Net income (368) — — 1,354 764 Gain onsalesofinvestmentsinsecurities Impairment losses(Note4) Interest expense Equity inearningsofaffiliates Interest anddividendincome ahdvdns7.5 (581) 1,392 Cash dividends Deferred Other, net urn 7,360 Current 3,142 6,778 2004 2004 iloso e (Note3) Millions ofyen 06 0.43 $ 50.61 ¥ $131,229 15,485 ¥ $853,525 ¥100,716 00685,475 221,373 10,086 26,122 107178,619 170,068 383,415 21,077 470,110 20,068 45,243 55,473 03087,712 10,350 572133,661 15,772 ,3 29,068 3,430 ,9 34,720 4,097 ,8 10,076 1,189 ,4 42,754 5,045 25 (2,331) (5,153) (275) (608) 27 (2,432) (287) 052005 2005 052005 2005 2 2,712 8,390 320 990 6 2,237 264 . 0.08 9.0 e (Note3) Yen Thousands of U.S. dollars U.S. dollars INPEX Holdings Inc. 77

Consolidated Statements of Shareholders’ Equity Teikoku Oil Co., Ltd. and Consolidated Subsidiaries Fiscal years ended December 31, 2004 and 2005

Thousands of U.S. dollars Millions of yen (Note 3) 2004 2005 2005

Common stock

Beginning of year ¥ 19,579 ¥ 19,579 $ 165,924 INPEX End of year ¥ 19,579 ¥ 19,579 $ 165,924

Capital surplus Beginning of year ¥ 11,222 ¥ 11,225 $ 95,127 Profit on sales of treasury stock 2 542 End of year ¥ 11,225 ¥ 11,230 $ 95,169

Retained earnings Beginning of year ¥107,735 ¥114,999 $ 974,568 Net income for the year 9,276 15,485 131,229 TEIKOKU Cash dividends paid (1,832) (2,745) (23,263) Bonuses to directors and statutory auditors (50) (50) (424) Adjustment for inclusion in consolidation or equity method of accounting (130) —— End of year ¥114,999 ¥127,688 $1,082,102

Unrealized holding gain on securities Beginning of year ¥ 18,205 ¥ 20,533 $ 174,008 Net change during the year 2,327 18,548 157,186 End of year ¥ 20,533 ¥ 39,081 $ 331,195 DATA Translation adjustments Beginning of year ¥ 60 ¥78$ 661 Net change during the year 17 378 3,203 End of year ¥ 78 ¥ 457 $ 3,873

Treasury stock Beginning of year ¥ (340) ¥ (479) $ (4,059) Net change during the year (138) (341) (2,890) End of year ¥ (479) ¥ (820) $ (6,949) See notes to consolidated financial statements. DATA TEIKOKU INPEX 78 NE odnsInc. Holdings INPEX Fiscal yearsendedDecember31,2004and2005 Teikoku OilCo.,Ltd.andConsolidatedSubsidiaries Consolidated StatementsofCashFlows te,nt(136) (1,912) 16 (375) (4,050) 28,789 260 (5,824) (6,601) 15 (20,018) (56) Cash andcashequivalentsatbeginning ofyear Net increase(decrease)incashand cashequivalents Effect ofexchangeratechangeson cash Net cashprovidedbyfinancingactivities (474) Other, net (2,421) (136) Cash dividendspaid Repayment oflong-termdebt Proceeds fromlong-termdebt (Decrease) increaseinshort-termbankloans (5,903) (2,011) (814) Financing activities 0 (15,964) Net cashusedininvestingactivities (2,091) 156 Other, net 2,737 Payments ofoilandgasinvestments Acquisition ofsubsidiariesstockresultinginchanges 19,225 Acquisition ofsubsidiariesstockresulting Increase inotherlong-termreceivables Decrease (increase)ininvestmentssecurities Additions tointangiblefixedassets Proceeds fromsalesofproperty,plantandequipment Additions toproperty,plantandequipment (Increase) decreaseinshort-termreceivables (Increase) decreaseinmarketablesecurities Decrease (increase)intimedeposits Investing activities Net cashprovidedbyoperatingactivities Income taxespaid Other, net 16,676 ¥ Income beforeincometaxesandminorityinterests Operating activities ahadcs qiaet tedo er¥22,234 ¥ 46 See notestoconsolidatedfinancialstatements. Cash andcashequivalentsatend of year Increase arisingfrominclusionofsubsidiaries inconsolidation neetpi (373) 820 Interest paid Interest anddividendreceived eoeyo i n a netet 454 (78) 430 (50) 1,004 368 82 150 157 (1,354) (1,620) (764) — (138) 29 Recovery ofoilandgasinvestments Bonuses todirectorsandstatutoryauditors Increase inothercurrentliabilities (Decrease) increaseconsumptiontaxespayable Increase innotesandaccountspayable 10,160 Decrease inothercurrentassets Increase ininventories (183) Increase innotesandaccountsreceivable Gain onsalesofproperty,plantsandequipment 124 (Gain) lossonsalesofinvestmentsinsecurities 246 Equity inearningsofaffiliates (199) Interest expense Interest anddividendincome Other provision Increase (decrease)inallowanceforlossesonoverseasinvestments Increase inaccruedestimatedcostofabandonmentwells Increase (decrease)inaccruedretirementbenefit Impairment losses Loss ondevaluationofinvestmentsinsecurities Depreciation andamortization nsoeo osldto 618 in scopeofconsolidation uttl24,682 Subtotal 2004 iloso e (Note3) Millions ofyen 612$221,373 $ 26,122 ¥ 555$216,483 $ 25,545 ¥ 2,8)(171,924) (20,287) (169,322) (19,980) (85,127) (10,045) 483210,619 24,853 224188,424 22,234 125,932 14,860 128,119 15,118 272 (23,153) (32,763) (2,732) (3,866) (26,127 (3,083) (55,644) (6,566) 319 (26,432) (29,068) (3,119) (3,430) ,0 28,042 66,483 3,309 7,845 37,407 4,414 ,6 24,288 2,866 75,949 8,962 36 (2,847) (336) (4,915) (907) (580) (4,602) (107) (543) (4,178) (493) 69 (5,754) (679) 29 (1,941) (5,847) (229) (1,237) (2,712) (690) (8,390) (146) (2,212) (320) (990) (261) 052005 2005 3 5,356 632 1,881 222 9 8,390 990 7 1,500 2,458 177 290 5,153 7,169 3,763 608 2,331 846 444 275 8)(678) (80) (788) (551) (93) (65) 5)(424) (50) 5212 25 1432 51 85 10 —— —— 18 Thousands of U.S. dollars ) INPEX Holdings Inc. 79

Notes to Consolidated Financial Statements Teikoku Oil Co., Ltd. and Consolidated Subsidiaries December 31, 2005

1 Basis of Preparation

The accompanying consolidated financial statements consolidated financial statements prepared by the of Teikoku Oil Co., Ltd. (the “Company”) and consoli- Company as required by the Securities and Exchange

dated subsidiaries are prepared on the basis of Law of Japan. INPEX accounting principles generally accepted in Japan, As permitted by the regulations under the Securities which are different in certain respects as to the appli- and Exchange Law of Japan, amounts less than one mil- cation and disclosure requirements of International lion yen have been omitted. As a result, the totals shown Financial Reporting Standards, and its consolidated in the accompanying consolidated financial statements foreign subsidiaries, in conformity with those of their (both in yen and in U.S. dollars) do not necessarily countries of domicile, and are compiled from the agree with the sums of the individual amounts.

2 Significant Accounting Policies TEIKOKU (a) Principles of consolidation and accounting The balance sheet accounts of the foreign consoli- for investments in unconsolidated subsidiaries dated subsidiaries, except for shareholders’ equity, the and affiliates components of which are translated at the historical The accompanying consolidated financial statements exchange rates, are translated into yen at the rate of include the accounts of the Company and significant exchange in effect at the balance sheet date. The companies controlled directly or indirectly by the revenue and expense accounts are translated at the Company. Significant companies over which the average exchange rates for the year. The components Company exercises substantial influence in terms of of shareholders’ equity are translated at their historical their operating and financial policies have been included exchange rates. in the consolidated financial statements on an equity Effective the year ended December 31, 2005, the

basis. All significant intercompany balances and Company and its consolidated subsidiaries have adopt- DATA transactions have been eliminated in consolidation. ed the average rates for the revenue and expense of The excess cost over underlying net equity at fair the foreign subsidiaries. As a result of the adoption, value of investments in consolidated subsidiaries and income before income taxes and minority interests in companies accounted for by the equity method is decreased by ¥117 million ($992 thousand) for the being amortized by the straight-line method over a year ended December 31, 2005 as compared with period no more than 20 years. amount which are translated at the previous rates, the Investments in unconsolidated subsidiaries and exchange rate at the balance sheet date. affiliates not accounted for by the equity method are The effect of the above changes on segment stated at cost or less. Where there has been perma- information is explained in Note 16. nent impairment in the value of such investments, the (c) Cash equivalents Company has written down its investments to reflect The Company and its consolidated subsidiaries consider such impairment. all highly liquid investments with a maturity of three (b) Foreign currency translation months or less when purchased to be cash equivalents. Monetary assets and liabilities denominated in foreign (d) Securities currencies are translated into yen at the exchange In general, securities are classified into three cate- rates prevailing at the balance sheet dates. gories: trading, held-to-maturity or other securities. All revenues and expenses associated with foreign Securities held by the Company and its consolidated currencies are translated at the rates of exchange pre- subsidiaries are all classified as other securities. Other vailing when such transactions were made. The result- securities with a determinable market value are stated ing exchange gains and losses are credited or charged at fair value with any changes in unrealized holding to income. DATA TEIKOKU INPEX 80 NE odnsInc. Holdings INPEX od bythestraight-linemethodoverestimatedyears retirement benefitobligationisattributedtoeachperi- adjusted forunrecognizedactuarialgainorloss.The pension planassetsasofbalancesheetdates, retirement benefitobligationandthefairvalueof principally attheamountcalculatedbasedon Accrued retirementbenefitsforemployeesareprovided (i) Retirementbenefits finance leases. leased assetstothelesseeareaccountedforas ments whichstipulatethetransferofownership operating orfinanceleases)exceptthatleaseagree- operating leases(whethersuchareclassifiedas Noncancelable leasesareprimarilyaccountedforas (h) Leases are chargedtoincome. ments arecapitalizedatcost.Maintenanceandrepairs respective assets.Significantrenewalsandimprove- line methodovertheestimatedusefullivesof Property, plantandequipmentarestatedatcost. (g) Property,plantandequipmentdepreciation agreements. recovered inaccordancewiththetermsofrespective under certainagreementsarecapitalizedasassetsand Expenditures relatingtoexplorationanddevelopment (f) The accountingprocedureoftheaccountoil by thespecificidentificationmethod. construction projectsinprogresswhicharedetermined mined bythemovingaveragemethodexceptfor age method.Otherinventoriesarestatedatcostdeter- or market,costbeingdeterminedbythemovingaver- Finished productsaremainlystatedatthelowerofcost (e) Inventories average method. Cost ofsecuritiessoldisdeterminedbythemoving without adeterminablemarketvaluearestatedatcost. ed directlyinshareholders’equity.Othersecurities gain orloss,netoftheapplicableincometaxes,includ- and gasinvestments Depreciation ismainlycomputedbythestraight- therefore, reflectsuchappropriation.(SeeNote17.) financial period.Theaccountsforthatperioddonot, general meetingheldsubsequenttothecloseofsuch period ismadebyresolutionoftheshareholdersata of retainedearningswithrespecttoagivenfinancial Under theCommercialCodeofJapan,appropriation (n) Appropriationofretainedearnings income whenincurred. Research anddevelopmentcostsarechargedto (m) Researchanddevelopmentcosts of theinvesteesandcertainotherfactors. mined bytheCompanywithreferencetonetworth development ofnaturalresourcesatanamountdeter- ed forpossiblelossesarisingfrominvestmentsinthe Allowance forlossesonoverseasinvestmentsisprovid- (l) Allowanceforlossesonoverseasinvestments of suchwells. consolidated subsidiaries’plansfortheabandonment over ascheduledperiodbasedontheCompany’sor abandonment ofwellsatanestimatedamountallocated provided tocoverthecostsbeincurredupon The accruedestimatedcostofabandonmentwellsis (k) Accruedestimatedcostofabandonmentwells effect whenthedifferencesareexpectedtoreverse. using theenactedtaxratesandlawswhichwillbein tax basesoftheassetsandliabilities,aremeasured on thedifferencesbetweenfinancialreportingand Deferred taxassetsandliabilitiesaredeterminedbased (j) Incometaxes been madeatanestimatedamount. provision forretirementbenefitstheseofficershas respective unfundedretirementallowancesplans.The customarily entitledtolump-sumpaymentsundertheir Company andcertainconsolidatedsubsidiariesare the averageremainingyearsofserviceemployees. method overaperiodof10yearswhichisshorterthan which thegainorlossisrecognizedbystraight-line loss areamortizedintheyearfollowing of servicetheeligibleemployees.Actuarialgainand In addition,directorsandstatutoryauditorsofthe INPEX Holdings Inc. 81

3 U.S. Dollar Amounts

The translation of yen amounts into U.S. dollar rate of exchange on December 31, 2005. The transla- amounts is included solely for convenience and has tion should not be construed as a representation that

been made, as a matter of arithmetical computation yen have been, could have been, or could in the future INPEX only, at the rate of ¥118=U.S.$1.00, the approximate be, converted into U.S. dollars at that or any other rate.

4 Accounting Change

Effective January 1, 2005, the Company and its con- The effect of the adoption of this new standard solidated subsidiaries have adopted a new accounting resulted decrease to income before income taxes and standard for impairment of fixed assets as the adoption minority interests by ¥275 million ($2,331 thousand) of the standards was permitted from the fiscal year for the year ended December 31. ended March 31, 2004. TEIKOKU

5 Securities

(a) Information regarding marketable securities classified as other securities as of December 31, 2004 and 2005 is as follows: Millions of yen Acquisition Carrying Unrealized December 31, 2004 cost value gain (loss)

Securities whose carrying value exceeds their acquisition cost:

Stock ¥21,062 ¥53,701 ¥32,638 DATA Bonds: Government bonds 1,049 1,065 15 Corporate bonds 300 301 0 Other debt securities 149 149 0 Others — — — Subtotal 22,563 55,218 32,654 Securities whose acquisition cost exceeds their carrying value: Stock 1,014 683 (331) Bonds: Government bonds 30 30 (0) Corporate bonds 415 415 (0) Other debt securities 1,599 1,599 (0) Others — — — Subtotal 3,061 2,729 (332) Total ¥25,624 ¥57,947 ¥32,322 DATA TEIKOKU INPEX 82 NE odnsInc. Holdings INPEX Corporate bonds eebr3,20 ero esfv er ieyasya rls ieyasfiveyears fiveyears (30) 0 yearorless fiveyears 84 fiveyears ¥ yearorless Total Other debtsecurities Government bonds December 31,2005 Theredemptionscheduleforsecuritieswithmaturitydatesclassifiedasotherissummarizedfollows: (c) Loss onsales Gain onsales Proceeds fromsales (b) Information regardingsalesofsecuritiesclassifiedasotherfortheyearsendedDecember31,2004 Total gain(loss) Subtotal value cost gain(loss) value Securities whoseacquisitioncostexceeds Subtotal cost Securities whosecarryingvalueexceeds December 31,2005 their carryingvalue: their acquisitioncost: Stock Stock Bonds: Others Others Bonds: and 2005isasfollows: Other debtsecurities Corporate bonds Government bonds Other debtsecurities Corporate bonds Government bonds u noeya hog u fe u noeya hog Dueafter yearthrough Dueinone Dueafter yearthrough Due inone 767¥,6 3 6,2 997$254 — $9,907 $ $8,475 $64,720 ¥30 3,153 $ ¥1,169 — ¥ ¥7,637 ¥1,000 372 ¥ custo arigUraie custo arigUnrealized Carrying Acquisition Unrealized Carrying Acquisition ,6 05,7 254 — 56,475 30 — 6,664 2,0 8,4 6,3 2328$6,4 $518,958 $762,246 $243,288 ¥61,237 ¥89,945 ¥28,708 $519,797 $679,729 $159,924 ¥61,336 ¥80,208 ¥18,871 0668,3 13815356522519,898 695,212 175,305 61,348 82,035 20,686 0 6 ,8 ,3 — 1,432 5,085 — 169 600 ,4 ,3 1 3594,5 (8) (76) 43,551 43,559 11,627 (1) 11,712 (9) 5,139 5,140 1,372 1,382 ,2 ,1 11 7956,3 (941) 67,034 67,975 (111) 7,910 0 8,021 13,169 13,169 0 1,554 1,554 0 0 0 ,3 ,3 (0) 4,237 (847) 4,237 7,602 (0) 8,449 500 (100) 500 897 997 5 6 121622093 2,280 2,186 11 269 258 — — — — ——— — — — — ——— 1 0 8 8 110 u fe n Dueafterone Due afterone iloso e ThousandsofU.S.dollars Millions ofyen iloso e ThousandsofU.S.dollars Millions ofyen 2004 iloso e U.S.dollars Millions ofyen 554$47,322 ¥5,584 ,3 29,068 3,430 052005 2005 —— Thousands of INPEX Holdings Inc. 83

6 Inventories

Inventories at December 31, 2004 and 2005 were composed of the following: Thousands of Millions of yen U.S. dollars INPEX 2004 2005 2005

Merchandise and finished products ¥2,553 ¥2,724 $23,085 Work in progress 451 969 8,212 Real estate for sale 263 976 Raw materials and supplies 2,246 2,626 22,254 ¥5,514 ¥6,330 $53,644

7 Investments in Securities and Allowance for Losses on Overseas Investments

Investments in securities and allowance for losses on overseas investments at December 31, 2004 and 2005 consisted TEIKOKU of the following: Thousands of Millions of yen U.S. dollars 2004 2005 2005

Unconsolidated subsidiaries and affiliates ¥ 3,374 ¥ 4,039 $ 34,229 Less: Allowance for losses on overseas investments (2,253) (0) (0) 1,120 4,039 34,229 Other securities: Listed stocks 54,384 81,106 687,339 Marketable debt securities 1,196 1,672 14,169 Unlisted stocks and other 9,425 9,207 78,025 DATA Less: Allowance for losses on overseas investments — (1,745) (14,788) 65,006 90,241 764,754 ¥66,127 ¥94,280 $798,983

8 Short-Term Loans and Long-Term Debt

Short-term bank loans are principally unsecured and 1.03%, respectively. generally represent notes. The weighted average Long-term debt at December 31, 2004 and 2005 interest rates for the years ended December 31, consisted of the following: 2004 and 2005 were approximately 1.48% and Thousands of Millions of yen U.S. dollars 2004 2005 2005

Loans from banks and others, at interest rates ranging from 0.84% to 5.02%, due through 2016: Secured ¥ 9,874 ¥13,037 $110,483 Unsecured 7,485 15,489 131,263 17,360 28,527 241,754 Less: Current portion (3,831) (4,680) (39,661) ¥13,529 ¥23,847 $202,093 DATA TEIKOKU INPEX 84 NE odnsInc. Holdings INPEX 9 Income Taxes fetv a ae40.6% 36.1% Effective taxrate 88,449 10,437 U.S.dollars Statutory taxrate Millionsofyen mately 36.1%for2004and2005. aggregate, resultedinastatutorytaxrateofapproxi- tion, enterpriseandinhabitants’taxeswhich,inthe domestic consolidatedsubsidiariescomprisecorpora- Income taxesapplicabletotheCompanyandits ¥10,713 2010 andthereafter 2009 2008 8,321 2007 2006 Year endingDecember31, Property, plantandequipment—atnetbookvalue Investments insecurities oeg a rdt(12.2) 2.3 (2.9) 26.6 — 0.6 (0.6) Different taxratesappliedtoincomeofforeignsubsidiaries (9.4) Changes invaluationallowance Equity inearningsofaffiliates Foreign taxcredit Dividend incomedeductiblefortaxpurposes Expenses notdeductibleforincometaxpurposes Exploration costdeductedforincometaxpurposes Foreign tax Effect of: te,nt0.1 Other, net Aggregate annualmaturitiesoflong-termdebtsubsequenttoDecember31,2005areasfollows: Assets pledgedascollateralforlong-termdebtandotherliabilitiesatDecember31,20042005werefollows: following reasons: 2004 and2005differfromthestatutorytaxratefor statements ofincomefortheyearsendedDecember31, The effectivetaxratesreflectedintheconsolidated ¥19,034 2004 2004 iloso e U.S.dollars Millions ofyen ,8 39,661 $ 4,680 ¥ 84,466 $ 9,967 ¥ 1,7 $149,754 ¥17,671 2,2 $241,754 ¥28,527 39.6% 23.1 36.1% ,8 30,390 39,322 43,915 3,586 4,640 5,182 65,280 7,703 (3.1) (0.4) (8.5) (2.6) (5.5) (0.6) 0.8 0.3 052005 2005 2005 Thousands of Thousands of INPEX Holdings Inc. 85

The significant components of deferred tax assets and liabilities at December 31, 2004 and 2005 were as follows: Thousands of Millions of yen U.S. dollars 2004 2005 2005

Deferred tax assets: INPEX Allowance for losses on overseas investments ¥ 3,628 ¥ 4,272 $ 36,203 Depreciation 3,069 2,507 21,246 Foreign tax credit carryforward 4,620 6,065 51,398 Accrued severance benefits 2,519 2,503 21,212 Loss on devaluation of investments in securities 776 700 5,932 Accrued estimated cost of abandonment of wells 974 1,148 9,729 Property, plant and equipment 606 621 5,263 Net operating loss carryforward 498 405 3,432 Advanced depreciation of fixed assets 394 363 3,076 Foreign exchange loss 1,032 ——

Loss on revaluation of exploration, investment and development 559 330 2,797 TEIKOKU Other 1,347 1,418 12,017 Subtotal 20,027 20,338 172,356 Valuation allowance (12,715) (13,421) (113,737) Total deferred tax assets 7,311 6,916 58,610

Deferred tax liabilities: Reserve for exploration 4,358 4,673 39,602 Reserve for special depreciation 1,257 1,052 8,915 Reserve for advanced depreciation of fixed assets 414 464 3,932 Reserve for losses on overseas investments 287 287 2,432

Unrealized holding gains on securities 11,788 22,145 187,669 DATA Other 100 223 1,890 Total deferred tax liabilities 18,207 28,846 244,458 Net deferred tax liabilities ¥ 10,896 ¥ 21,930 $ 185,847

10 Retirement Benefit Plans

The Company, its domestic subsidiaries and certain under which termination occurs. foreign subsidiaries have defined benefit plans, i.e., The following table sets forth the funded and tax-qualified pension plans and lump-sum payment accrued status of the plans, and the amounts recog- plans, covering substantially all employees who are nized in the consolidated balance sheet as of entitled to lump-sum or annuity payments, the December 31, 2004 and 2005 for the Company’s and amounts of which are determined by reference to their the subsidiaries’ defined benefit plans: basic rates of pay, length of service, and the conditions Thousands of Millions of yen U.S. dollars December 31, 2004 2005 2005

Retirement benefit obligation ¥(13,259) ¥(13,169) $(111,602) Plan assets at fair value 7,216 7,337 62,178 Unfunded retirement benefit obligation (6,042) (5,832) (49,424) Unrecognized actuarial gain or loss (423) (658) (5,576) Accrued retirement benefits for employees ¥ (6,466) ¥ (6,491) $ (55,008) DATA TEIKOKU INPEX 86 NE odnsInc. Holdings INPEX 13 12 11 Research andDevelopmentExpenses Depreciation andAmortization Capital SurplusandRetainedEarnings as follows: general andadministrativeexpensesfortheyears Research anddevelopmentexpensesincludedinselling, years endedDecember31,2004and2005amounted equipment andotherassetschargedtoincomeforthe Depreciation andamortizationofproperty,plant 2.0% ¥773 or 0.5% to reduce ciple, neither capitalsurplusnorthelegalreserveis,inprin- December 31,2004and2005.TheCodeprovidesthat 253 amounted to¥3,401million($28,822thousand)asof ¥576 which isincludedinretainedearnings.Thisreserve “Code”), theCompanyhasprovidedalegalreserve (35) In accordancewiththeCommercialCodeofJapan(the (21) 2004 Expected returnonplanassets Discount rates December 31, Total Amortization ofactuarialgainorloss Expected returnonplanassets Interest cost Service cost Year endedDecember31, The assumptionsusedinaccountingfortheaboveplanswereasfollows: The componentsofretirementbenefitexpensesfortheyearsendedDecember31,2004and2005areoutlined available fordividends,butbothmaybeused eliminate adeficitbyresolutionofthe and ¥85million($720thousand),respectively. ended December31,2004and2005were¥96million sand), respectively. to ¥10,160millionand¥8,962($75,949thou- dividends subjecttotheapprovalofshareholders. to theshareholderseitherasareturnofcapitalor amount ofcommonstock,theexcessmaybedistributed surplus andthelegalreserveexceeds25%of ever, doesprovidethatifthetotalamountofcapital by resolutionoftheBoardDirectors.TheCode,how- shareholders ormaybetransferredtocommonstock 2004 iloso e U.S.dollars Millions ofyen 2 $6,178 729 ¥ $5,331 629 ¥ 1.5% 2.0% 15 (890) (105) 052005 2005 2005 4 2,085 246 4)(347) (41) Thousands of INPEX Holdings Inc. 87

14 Leases

The following pro forma amounts represent the acquisi- balance sheets if finance lease accounting had been tion costs, accumulated depreciation and net book value applied to the finance lease transactions currently

of leased property as of December 31, 2004 and 2005 accounted for as operating leases: INPEX which would have been reflected in the consolidated Thousands of Millions of yen U.S. dollars 2004 2005 2005

Acquisition costs: Equipment and others ¥768 ¥838 $7,102 ¥768 ¥838 $7,102 Accumulated depreciation: Equipment and others ¥350 ¥405 $3,432 ¥350 ¥405 $3,432

Net book value: TEIKOKU Equipment and others ¥418 ¥432 $3,661 ¥418 ¥432 $3,661

Lease payments relating to finance lease transac- 2004 and 2005, respectively. tions accounted for as operating leases amounted to Future minimum lease payments (including the ¥144 million and ¥155 million ($1,314 thousand), interest portion thereon) subsequent to December 31, which were equal to the depreciation expense of the 2005 for finance lease transactions accounted for as leased assets computed by the straight-line method operating leases are summarized as follows: over the lease terms, for the years ended December 31, Thousands of Year ending December 31, Millions of yen U.S. dollars DATA

2006 ¥149 $1,263 2007 and thereafter 282 2,390 ¥432 $3,661

15 Contingent Liabilities

At December 31, 2005, the Company and its consolidated subsidiaries had the following contingent liabilities: Thousands of Millions of yen U.S. dollars

As guarantor of indebtedness of others ¥7,608 $64,475 DATA TEIKOKU INPEX 88 NE odnsInc. Holdings INPEX 16 Segment Information 05 i n a te oa n te Consolidated andother Total Other OilandGas Consolidated andother Total Salesandoperatingincome I. 2005: Other OilandGas Salesandoperatingincome I. 2004: petroleum products;andtheothersegmentcomprises cal refining,andthetransportationofnaturalgas gas, crudeoil,petroleumproducts,iodine,petrochemi- gas segmentcomprisesnaturalgas,liquidpetroleum marily engagedintheoilandgasbusiness.The The Companyanditsconsolidatedsubsidiariesarepri- (a) Businesssegments II.Assets, depreciationand II.Assets, II.Assets, depreciationand II.Assets, ae otidpris¥8,0 222¥8,3 84,032 ¥ Sales tothirdparties — ¥ 84,032 ¥ ¥2,222 81,809 ¥ Sales tothirdparties aia xedtrs2,1 32,3 1)20,827 (10) Impairment losses Depreciation andamortization 20,837 84,032 13,533 Total assets ¥ 70,498 — 23 (626) 85 Operating income (712) ¥ Operating expenses 84,658 20,814 13,447 Total sales (626) ¥ 71,211 Intergroup salesandtransfers 2,825 236 ¥ 626 2,588 81,833 13,211 ¥ 68,622 602 Capital expenditures 23 Operating income Operating expenses Total sales Intergroup salesandtransfers Capital expenditures 10,160 ¥240,513 (960) ¥ (29) ¥241,473 10,189 ¥6,688 ¥234,784 181 10,008 Depreciation andamortization Total assets capital expenditures capital expenditures 846¥,1 1076¥—¥100,716 — ¥ ¥100,716 ¥2,310 98,406 ¥ 074¥35¥2,6 7¥21,077 ¥293,767 ¥ ¥(1,262) 17 ¥ ¥295,029 21,060 ¥6,935 ¥ ¥288,093 305 ¥ 20,754 ¥ 7672608,2 69 79,639 100,716 (689) (672) 80,328 101,388 2,660 2,965 77,667 98,422 043222,9 5)20,643 (53) 20,696 212 20,483 ,0 7 ,8 1)8,962 (18) 8,981 177 8,803 7 7 275 — 275 — 275 66562(7)— (672) 672 655 16 as follows: years endedDecember31,2004and2005isoutlined Company anditsconsolidatedsubsidiariesforthe warehousing. real estateleasingandmanagement,drillingwells The businesssegmentinformationforthe Eliminations Eliminations Millions ofyen Millions ofyen INPEX Holdings Inc. 89

Thousands of U.S. dollars Eliminations 2005: Oil and Gas Other Total and other Consolidated

I. Sales and operating income Sales to third parties $ 833,949 $19,576 $ 853,525 $ — $ 853,525 Intergroup sales and transfers 136 5,551 5,695 (5,695) — INPEX Total sales 834,085 25,127 859,220 (5,695) 853,525 Operating expenses 658,195 22,542 680,746 (5,839) 674,907 Operating income $ 175,881 $ 2,585 $ 178,475 $ 144 $ 178,619 II.Assets, depreciation and capital expenditures Total assets $2,441,466 $58,771 $2,500,246 $(10,695) $2,489,551 Depreciation and amortization 74,602 1,500 76,110 (153) 75,949 Impairment losses 2,331 — 2,331 — 2,331 Capital expenditures 173,585 1,797 175,390 (449) 174,941 TEIKOKU As described in Note 2 (b), the Company has expenditures for the “Oil and Gas” segment decreased adopted the average rates for the revenue and expense by ¥1,210 million ($10,254 thousand), ¥841 million of the foreign subsidiaries effective the year ended ($7,127 thousand), ¥2 million ($17 thousand) and ¥1 December 31, 2005. million ($8 thousand), respectively, for the year ended As a result of the adoption, sales to third parties, December 31, 2005 as compared with amount which operating income, depreciation and amortization, capital are translated at the previous rates.

(b) Geographical areas The geographical areas segment information for the Company and its consolidated subsidiaries for the years ended December 31, 2004 and 2005 is outlined as follows: Millions of yen DATA Central and South Eliminations 2004: Japan Africa America Other Total and other Consolidated

Sales to third parties ¥ 74,086 ¥ 9,945 ¥ — ¥ — ¥ 84,032 ¥ — ¥ 84,032 Interarea sales and transfers — — — — — — — Total 74,086 9,945 — — 84,032 — 84,032 Operating expenses 65,152 4,883 — 462 70,498 0 70,498 Operating income (loss) ¥ 8,934 ¥ 5,062 ¥ — ¥ (462) ¥ 13,533 ¥ (0) ¥ 13,533 Total assets ¥216,922 ¥15,265 ¥ 9,543 ¥ 101 ¥241,833 ¥(1,320) ¥240,513

Millions of yen Central and South Eliminations 2005: Japan Africa America Other Total and other Consolidated

Sales to third parties ¥ 81,253 ¥12,140 ¥ 7,322 ¥ — ¥100,716 ¥ — ¥100,716 Interarea sales and transfers 0——— 0 (0)— Total 81,254 12,140 7,322 — 100,717 (0) 100,716 Operating expenses 69,490 4,779 5,157 360 79,788 (149) 79,639 Operating income (loss) ¥ 11,763 ¥ 7,360 ¥ 2,164 ¥ (360) ¥ 20,928 ¥ 148 ¥ 21,077 Total assets ¥265,071 ¥13,379 ¥16,269 ¥ 173 ¥294,894 ¥(1,127) ¥293,767 DATA TEIKOKU INPEX 90 NE odnsInc. Holdings INPEX December 31,2005. of theforeignsubsidiarieseffectiveyearended adopted theaverageratesforrevenueandexpense segment decreasedby¥691million($5,856thousand) the “Africa”segmentand“CentralSouthAmerica” December 31,2005. of theforeignsubsidiarieseffectiveyearended adopted theaverageratesforrevenueandexpense Company anditsdomesticconsolidatedsubsidiaries, Overseas sales,whichincludeexportsalesofthe (c) Overseassales ereddDcme 1 05NrhAeiaOhrTtlNrhAeiaOhrTotal Other NorthAmerica 84,032 Total ¥10,650 Other Overseas salesasapercentageof ¥1,379 NorthAmerica Consolidated netsales ¥9,270 Overseas sales Total Year endedDecember31,2005 Other Overseas salesasapercentageof NorthAmerica Consolidated netsales Overseas sales Year endedDecember31,2004 Consolidated andother Total Other America Africa Japan Total assets Operating income(loss) Operating expenses Total Interarea salesandtransfers Sales tothirdparties 2005: osldtdntsls1.%16 12.7% 1.6% consolidated netsales 11.0% consolidated netsales As aresultoftheadoption,salestothirdpartiesfor As describedinNote2(b),theCompanyhas As describedinNote2(b),theCompanyhas 966$6,7 839$301 7,5 ,5 178,619 $ 1,254 $ $2,489,551 $(9,551) 853,525 177,356 $ $ $2,499,102 — $(3,051) 1,466 18,339 $ $ $ $137,873 62,373 $113,381 $ 853,525 $2,246,364 99,686 $ $ — $ 62,051 $ $102,881 688,585 $ 8,9 0,8 201—8354()853,525 674,907 (0) (1,263) 676,169 853,534 3,051 — 43,703 40,500 62,051 588,898 102,881 688,593 1,5 1,2 021$516$668$171,873 $86,678 $85,186 20,281 ¥ ¥10,228 ¥10,052 ——0(0) 0 0——— — 00 02 01 00 02 20.1% 10.2% 10.0% 20.1% 10.2% 10.0% n ot Eliminations and South Central iloso e ThousandsofU.S.dollars Millions ofyen Millions ofyen previous 2005 ascomparedwithamountstranslatedatthe sand), respectively,fortheyearendedDecember31, ($5,847 thousand)and¥151million($1,280thou- South America”segmentdecreasedby¥690million income forthe“Africa”segmentand“Central and ¥518million($4,390thousand),operating amounts translatedatthepreviousrates. year endedDecember31,2005ascomparedwith ¥518 million($4,390thousand),respectively,forthe decreased by¥691million($5,856thousand)and “North America”segmentand“Other”segment, 31, 2004and2005areoutlinedasfollows: consolidated subsidiariesfortheyearsendedDecember and sales(otherthanexportstoJapan)ofitsforeign 0,1 853,525 100,716 As aresultoftheadoption,overseassalesfor rates. Thousands ofU.S.dollars INPEX Holdings Inc. 91

17 Subsequent Events

(a) Appropriations of retained earnings accompanying consolidated financial statements for The following appropriations of retained earnings of the the year ended December 31, 2005, were approved at

Company, which have not been reflected in the a shareholders’ meeting held on March 30, 2006: INPEX

Thousands of Millions of yen U.S. dollars

Cash dividends (¥4.50=$0.04 per share) ¥1,371 $11,619 Bonuses to directors and statutory auditors 50 424

(b) Conclusion of a Joint Stock Transfer Agreement the stock transfer date will be allotted the joint-holding The Company and INPEX CORPORATION (hereinafter company’s common shares based on the below stock “INPEX”) have reached a final agreement on the inte- transfer ratio. gration of the two companies, and resolved at the 1) 0.00144 share of the joint-holding company’s

respective meetings of Board of Directors held on common share will be allotted in exchange for 1 TEIKOKU November 5, 2005 to sign a “Joint Stock Transfer share of Company’s common share. Agreement.” The shareholders approved it at extraordi- 2) 1 share of the joint-holding company’s common nary shareholders’ meetings on January 31, 2006. The shares will be allotted in exchange or 1 share of two companies will establish a joint-holding company, the INPEX’s common share. “INPEX Holdings Inc.” (hereinafter “joint-holding com- 3) 1 share of the joint-holding company’s “special pany”) on April 3, 2006, by transferring their respective class share” will be allocated for 1 share of the stock to such holding company. INPEX’s special class share. Note: INPEX employs the odd lot share method, and the 1. Purpose of integration Company employs the stock unit method at 1,000 The Company and INPEX have decided to integrate the shares per unit.

two companies in order to establish a firm position in (3) Retirement of the treasury stocks DATA the global market by having stronger corporate power Both the Company and INPEX will retire all of their then and capability of acquiring interests in promising pro- existing treasury stock at an appropriate day pursuant jects through establishing a diversified asset portfolio, to the Japanese Commercial Code prior to the date of reinforcing a solid financial base and concentrating stock transfer. technological capabilities for resource development. (4) Stock transfer payments 2. Summary of the integration Shareholders and registered pledges listed or recorded (1) Type and number of shares to be issued by the in the final shareholders’ register of the Company on joint-holding company the day before the stock transfer date will receive a With the stock transfer, the joint-holding company will stock transfer payment of ¥3 for each common share in issue 2,360,659.95 common shares and 1 special the Company within three months of the stock transfer class share. However, if the Company and INPEX retire date, in place of a dividend. However, the amounts of their treasury stocks prior to the date of stock transfer, stock transfer payments may be changed upon consul- the number of common shares to be issued will be tation between the Company and INPEX in light of the reduced by the number of the shares to be allotted in circumstances, including the condition of assets and exchange for the shares retired by both the Company liabilities of the Company, changes in general economic and INPEX. In addition, the joint-holding company will conditions and others. employ the odd lot share method. (5) Date of stock transfer (2) Share allocation to shareholders of the Company Date of stock transfer/establishment of joint-holding and INPEX company is scheduled for April 3, 2006. Shareholders listed or recorded in the final shareholders’ Should unavoidable circumstances requiring a register of the Company and INPEX on the day before change in schedule arise, this timetable will be subject DATA TEIKOKU INPEX 92 NE odnsInc. Holdings INPEX 6 Dividendlimitsuntilthestocktransferdate (6) companies. to changefollowingconsultationbetweenthetwo 5 Fiscalyearend (5) Capital (4) Companyheadquarters (3) Businessdescription (2) Companyname (1) 3. Profileofthejoint-holdingcompany meeting oftheBoardDirectors. mon shareholdersofthejoint-holdingcompanyora holder inadditiontoaresolutionofmeetingcom- a resolutionofmeetingthespecialclassshare- the managementofjoint-holdingcompanyrequire transfer, capitalreductionanddissolution)concerning articles incorporation,mergers,shareexchange, all orpartoftheimportantassets,amendment (appointment andremovalofdirectors,disposition vides thatdecisionsonthefollowingmaterialmatters share totheministerofeconomy,tradeandindustry. based onitsarticlesofincorporation,andallocatethe share withtheequalrightasoneissuedbyINPEX The joint-holdingcompanyshouldissueaspecialclass Aspecialclasssharetobeissuedbythejoint- (7) (INPEX’s currentheadquarters) 4-1-18 Ebisu,Shibuya-ku,Tokyo,105-0013,Japan subsidiaries. management ofthenewcorporategroupandits INPEX HoldingsInc.willbeengagedinthe Kaihatsu TeisekiHoldingsKabushikiKaisha) INPEX HoldingsInc.(Japanesename:KokusaiSekiyu holding company 2) INPEX willbeabletopaydividendsonprofitsup 1) The Companywillbeabletopaydividendson March 31 ¥30 billion The articlesofincorporationtheCompanypro- March 31,2006. recorded inthefinalshareholders’registeron shareholders andregisteredpledgeslistedor class share,ortoatotalof¥10,559,081,000 to ¥5,500percommonshareandspecial shareholder’s registeronDecember31,2005. registered pledgeslistedorrecordedinthefinal total of¥1,372,504,000toshareholdersand profits upto¥4.50percommonshare,ora .Dt frtrmn March31,2006 ¥1,164million Numberofissued stocks 6. Dateofretirement 5. 1,562,067 commonstock Amountofretirement 4. Numberofretired stocks 3. Typeofretired stocks 2. Wayofretirement 1. held onMarch30,2006.Thedetailsareasfollows: was authorizedbyaboardresolutionatthemeeting suant to Article212oftheCommercialCodeJapan on January31,2006,retirementoftreasurystockspur- INPEX attheextraordinaryshareholders’meetingheld Because oftheapprovaljointstocktransferwith (c) Retirementoftreasurystocks Netincome(consolidatedbasis) (9) Netsales(consolidatedbasis) (8) Fiscalyearend (7) Totalassets(consolidatedbasis) (6) Sharesoutstanding(asofMarch31,2005) (5) Capital (4) Representative (3) Headquarters (2) Mainbusiness (1) 4. CompanyprofilesofINPEX companies engagedintheaforementionedactivities crude oilandnaturalgas,loansinvestmentsto Exploration, development,production,salesof ¥76,494 million(asofMarch31,2005) ¥478,587 million(asofMarch31,2005) 1 March 31 ¥779,228 million(asofMarch31,2005) 1,919,832.75 Per specialclassshare Per commonshare ¥29,460 million(asofMarch31,2005) Naoki Kuroda,President&RepresentativeDirector 4-1-18, Ebisu,Shibuya-ku,Tokyo,150-0013,Japan fe eieet304,567,933 after retirement and retainedearnings reduce capitalsurplus INPEX Holdings Inc. 93

Report of Independent Auditors INPEX

Report of Independent Auditors

The Board of Directors Teikoku Oil Co., Ltd.

We have audited the accompanying consolidated balance sheets of Teikoku Oil Co., Ltd. and consolidated subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then TEIKOKU ended, all expressed in yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our DATA opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teikoku Oil Co., Ltd. and consolidated subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended December 31, 2005 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 3.

March 31, 2006 DATA TEIKOKU INPEX 94 NE odnsInc. Holdings INPEX Teikoku OilCo.,Ltd.andConsolidatedSubsidiaries Consolidated BalanceSheets [For reference] rnlto dutet 457 11,230 127,688 19,579 94,229 39,081 65,230 2,320 28,998 Translation adjustments Unrealized holdinggainsonsecurities Retained earnings Capital surplus ¥293,767 Common stock SHAREHOLDERS’ EQUITY Minority interestsinconsolidatedsubsidiaries MINORITY INTERESTS Total Liabilities Total Long-TermLiabilities 235,180 Long-Term Liabilities Total CurrentLiabilities Current Liabilities LIABILITIES Total Assets Total Property,Plant&Equipment 58,586 Property, Plant&Equipment Total CurrentAssets Current Assets ASSETS rauysok(820) 197,216 ¥293,767 Total Liabilities,MinorityInterests& Shareholders’Equity Total Shareholders’Equity Treasury stock eevsfrseilrpis160 23,847 23,277 10,229 904 6,491 2,905 14,323 5,175 3,006 ¥ Reserves forspecialrepairs Accrued costofabandonmentwells Accrued directorretirementcompensation Accrued employeeretirementbenefits Deferred taxliabilities Long-term debt Accrued incometaxes Accrued expenses Short-term bankloans Notes &accountspayable 13,771 6,330 9,182 13,387 ¥ 15,921 Tangible Assets Others Inventories Marketable securities Notes, accountsreceivable Cash &deposits oa agbeAst 125,418 Intangible Assets Total TangibleAssets oa nagbeAst 811 Investments &Long-TermReceivables Total IntangibleAssets tes3,588 108,949 Others Total InvestmentsandLong-TermReceivables (6) Less: Provisionsfordoubtfulaccounts Others ad8,676 409 24,417 12,293 79,346 Construction inprogress Land Machinery &vehicles Wells Buildings &structures tes811 0 275 (2,946) Less: Allowanceforlossesonoverseasinvestments Others Exploration rights Others tes11,346 1,217 96,025 (6) 3,312 — Less: Allowanceforexploration&developmentinvestmentlosses Less: Allowancefordoubtfulreceivables Others Exploration &developmentinvestment Long-term loans Marketable securities Fiscal YearEnded December 31, Consolidated 2005 319 iclPro ne FiscalPeriodEnded Fiscal PeriodEnded iloso e U.S.dollars Millions ofyen ,3 24,205 $ 2,832 $2,638,111 ¥ ¥308,659 164,684 $ 19,268 ¥ 3869$2,638,111 ¥308,659 osldtdConsolidated Consolidated 3,4 1,126,026 131,745 863,957 101,083 2,075,162 242,794 0,5 1,754,325 205,256 2,9 1,081,171 126,497 0,6 897,120 104,963 1,6 985,197 115,268 ac 1 March31, March 31, 226361,419 95,915 167,342 42,286 11,222 19,579 623,308 72,927 209,009 260,846 240,650 24,454 30,519 108,650 28,156 12,712 226,487 108,838 667,197 26,499 562,940 12,734 78,062 156,684 112,821 65,864 18,332 13,200 13196,675 11,311 293 (24,897) (2,913) ,4 77,265 55,726 9,040 6,520 19,573 46,564 2,290 5,448 74,889 53,915 8,762 6,308 ,1 19,812 2,318 74,342 8,698 ,2 8,786 8,786 1,028 1,028 ,7 14,299 1,673 ,7 41,641 4,872 ,5 11,556 1,352 55 (4,658) (545) 062006 2006 2 3,615 423 1,368 7,513 160 879 1,991 233 6 2,291 268 0 6,855 802 2)(197) (23) —— 7 (60) (7) 00 Thousands of INPEX Holdings Inc. 95

[For reference] Consolidated Statements of Income Teikoku Oil Co., Ltd. and Consolidated Subsidiaries

Thousands of Millions of yen U.S. dollars Consolidated Consolidated Consolidated Fiscal Year Ended Fiscal Period Ended Fiscal Period Ended December 31, March 31, March 31, 2005 2006 2006

Net Sales ¥100,716 ¥27,718 $236,906 INPEX Cost of Sales 55,473 12,807 109,462 Gross Profit 45,243 14,910 127,436 Exploration Expenses Exploration expenses 4,268 742 6,342 Exploration subsidies (170) (1) (9) Selling, General & Administrative Expenses 20,068 4,699 40,162 Operating Income 21,077 9,470 80,940 Other Income Interest income 253 122 1,043 Dividend income 736 348 2,974 Oil & gas royalties 721 209 1,786 TEIKOKU Equity in earnings of affiliates 320 4,067 34,761 Reversal of allowance for losses on overseas investment — 32 274 Rental income 480 117 1,000 Foreign exchange gains 482 —— Miscellaneous income 605 352 3,009

Other Expenses Interest expenses 608 135 1,154 Amortization of exploration & development rights — 1,067 9,120 Allowance for exploration & development investment losses — 545 4,658 DATA Allowance for losses on overseas investment 928 —— Allowance for cost of abandonment of wells 95 868 Cost of rental income 93 48 410 Foreign exchange loss — 760 Miscellaneous losses 131 101 863 Ordinary Income 22,820 12,804 109,436 Extraordinary Income Gain on the sale of fixed assets 146 —— Gain on the sale of investment in securities 3,430 —— Reversal of allowance for doubtful receivables 1 —— Extraordinary Losses Losses on overseas operations — 2,587 22,111 Impairment losses 275 —— Income Before Income Taxes and Minority Interests 26,122 10,216 87,316 Corporate & local taxes 10,086 4,485 38,333 Tax adjustments 264 (753) (6,436) Minority interests in earnings of consolidated subsidiaries (287) —— Net Income for the Period ¥ 15,485 ¥ 6,484 $ 55,419 DATA TEIKOKU INPEX 96 NE odnsInc. Holdings INPEX Teikoku OilCo.,Ltd.andConsolidatedSubsidiaries Consolidated StatementsofShareholders’Equity [For reference] Capital Surplus Retained Earnings Decrease duringtheyear einn fpro aac 11,225 ¥ Increase duringtheyear Beginning ofperiodbalance n fpro aac ¥127,688 114,999 11,230 ¥ End ofperiodbalance Increase duringtheyear Beginning ofperiodbalance End ofyearbalance Decrease duringtheyear ietrbnss(50) (2,745) Director bonuses Dividends paid rftfo h aeo rauysok5 Profit fromthesaleoftreasurystock e noefrtepro 15,485 — Increase inequityofretainedearningsaffiliates Net incomefortheperiod eieeto rauysok— — Retirement oftreasurystock Retirement oftreasurystock uio oto (6) Auditor portion Fiscal YearEnded December 31, Consolidated 2005 iclPro ne FiscalPeriodEnded Fiscal PeriodEnded iloso e U.S.dollars Millions ofyen 120$95,983 $ 11,230 ¥ 1175$1,126,026 ¥131,745 95,915 $ 11,222 ¥ osldtdConsolidated Consolidated 2,8 1,091,350 127,688 ac 1 March31, March 31, 131 (11,718) (1,371) 113 9,855) (1,153) ,8 55,419 6,484 4 1,248 146 062006 2006 5)(427) (50) 1)(85) (10) 6 (51) (6) 217 Thousands of INPEX Holdings Inc. 97

[For reference] Consolidated Statement of Cash Flows Teikoku Oil Co., Ltd. and Consolidated Subsidiaries

Thousands of Millions of yen U.S. dollars Consolidated Consolidated Consolidated Fiscal Year Ended Fiscal Period Ended Fiscal Period Ended December 31, March 31, March 31, 2005 2006 2006 Cash Flows from Operating Activities Income before income taxes and minority interests ¥ 26,122 ¥10,216 $ 87,316 INPEX Depreciation expenses 8,962 2,187 18,692 Losses on overseas operations — 2,587 22,111 Impairment losses 275 —— Increase (decrease) in accrued retirement benefits 10 29 248 Increase (decrease) in provision for exploration & development investment losses — 545 4,658 Increase (decrease) in other reserves 1,029 (24) (205) Interest and dividend income (990) (470) (4,017) Interest expenses 608 135 1,154 Loss (gain) on equity in earnings of affiliates (320) (4,067) (34,761) Loss (gain) on the sale of marketable securities (3,430) —— Gain on the sale of fixed assets (146) —— Decrease (increase) in notes and accounts receivable (3,119) 2,690 22,991 Recovery of exploration & development investment 2,866 200 1,709 TEIKOKU Decrease (increase) in inventories (690) 16 137 Decrease (increase) in other operating assets 51 185 1,581 Increase (decrease) accounts payable 290 (59) (504) Increase (decrease) in deferred taxes (229) 143 1,222 Increase (decrease) in other operating liabilities 177 (1,386) (11,846) Bonuses to directors and statutory auditors (50) (50) (427) Others (6,566) 1,885 16,111 Subtotal 24,853 14,765 126,197 Interest and dividends received 990 630 5,385 Interest paid (679) (172) (1,470) Corporate and local taxes paid (10,045) (5,350) (45,726) Net Cash Provided by Operating Activities 15,118 9,872 84,376 Cash Flows from Investing Activities Decrease in time deposits (2,197) (1,001) (8,556) DATA Redemption of time deposits 2,223 1,116 9,538 Purchases of investment securities (2,749) (1,499) (12,812) Redemptions and sales of marketable securities 2,256 1,499 12,812 Decrease (increase) in short-term loans (65) 70 598 Additions to property, plant and equipment (19,980) (3,545) (30,299) Proceeds from the sale of property, plant and equipment 222 13 111 Additions to intangible fixed assets (93) (299) (2,556) Purchases of investment securities (1,484) (296) (2,530) Redemptions and sales of investment securities 5,898 373 3,188 Purchases of stock in subsidiaries (107) —— Long-term loans (973) (550) (4,701) Recovery of long-term loans 429 94 803 Payments for exploration & development investments (3,083) (683) (5,838) Others (580) 217 Net Cash Provided by Investing Activities (20,287) (4,705) (40,214) Cash Flows from Financing Activities Increase (decrease) in short-term bank loans (80) —— Proceeds from long-term debt 14,860 7,945 67,906 Repayment of long-term debt (3,866) (986) (8,427) Net purchases of treasury stock (336) (340) (2,906) Dividends paid (2,729) (1,137) (9,718) Dividends paid to minority shareholders (2) —— Net Cash Provided by Financing Activities 7,845 5,480 46,838 Effect of exchange rate changes on cash 632 (17) (145) Net increase (decrease) in cash and cash equivalents 3,309 10,629 90,846 Cash and cash equivalents at the beginning of the period 22,234 25,545 218,333 Increase in cash arising from the inclusion of subsidiaries in consolidation 1 —— Cash and cash equivalents at the end of the period ¥ 25,545 ¥36,175 $309,188 INPEX Holdings Inc. 99

INPE X Holding s Inc. Operating Data and

+ TEIKOKU INPEX Corporate Information DATA

Contents Reserves and Production Volume of Oil and Gas 100 Subsidiaries and Affiliates 106 DATA TEIKOKU INPEX 100 NE odnsInc. Holdings INPEX Reserves andProductionVolume ofOilandGas 1 Oil andGasReserves production period. tee oftheproductiontotalreservesduringafuture strictness ofthedefinitiondoesnotimplyanyguaran- regarded asbeingconservative.Nevertheless,the the shortterm.Tothatend,thisdefinitioniswidely and shipment,orthecertaintytogainsuchmeansin marketable as “provedreserves”assumestheexistenceofa expenditure isrequiredforrecompletion.Tobedefined acreage orfromexistingwellswherearelativelymajor expected toberecoveredfromnewwellsonundrilled methods, and“provedundevelopedreserves”canbe existing wellswithequipmentandoperating oped reserves”canbeexpectedtorecoveredfrom defined accordingtotwocategories:“Proveddevel- such anestimateismade. ing economicandoperatingconditions,asofthedate able infutureyearsfromknownreservoirsunderexist- demonstrate withreasonablecertaintytoberecover- quantities thatgeologicalandengineeringdatacan investors. Provedoilandgasreservesareestimated Rule 4-10,whichiswidelyknownamongU.S. Securities andExchangeCommission’sRegulationS-X, DeGolyer andMacNaughtonisbasedontheU.S. 2005. Thedefinitionofprovedreservesevaluatedby proved reservesasofMarch31,2003,2004and assessment wasconductedfortheINPEXGroup’s Group asofMarch31,2006.Simultaneously,the reserves ofboththeINPEXGroupandTeikokuOil consultant intheUnitedStates,toassessproved MacNaughton, anindependentpetroleumengineering INPEX HoldingscommissionedDeGolyerand Aiming tomakeanobjectiveandrationalevaluation, Definition ofProvedReservesandProbable According toSECStandards,provedreservesare and economicmeansofrecovery,process are listedbyeachGroup. ble reserves,productionvolumeandotherrelateddata March 31,2006.Accordingly,provedreserves,proba- DeGolyer andMacNaughtonforthereservesasof received theirrespectiveassessmentreportsfrom 2006, theINPEXGroupandTeikokuOil total reservesduringafutureproductionperiod. reserves, andoffernoguaranteeoftheproduction reserves thatdonotfallunderthecategoryofproved tions. Therefore,probablereservesareactuallypotential cal conditions,andwithadvancesinoperationalcondi- addition ofnewtechnicaldata,underdifferenteconomi- reserves canbeupgradedtoprovedafterthe of certaintythatoilandgascanberecovered.Probable proved reservesbasedonSECstandardsisthedegree difference betweenthisdefinitionandtheof sum ofestimatedprovedandprobablereserves.The quantities actuallyrecoveredwillequalorexceedthe there shouldbeatleasta50%probabilitythatthe context, whenprobabilisticmethodsareemployed, analyses ofgeologicalandengineeringdata.Inthis are morelikelythannottoberecoverablebasedon defined bySPEandWPC,areunprovedreservesthat Petroleum Congress(WPC).Probablereserves,as the SocietyofPetroleumEngineers(SPE)andWorld probable reservesbasedonindicatorsestablishedby missioned DeGolyerandMacNaughtontoassessits based onSECStandards,INPEXHoldingsalsocom- Since INPEXHoldingswasestablishedonApril3, In additiontotheassessmentofprovedreserves INPEX TEIKOKU DATA 101 INPEX Holdings Inc. Interest in Interest in Reserves Held by Reserves Held by — 357.4 3,703.5 2.1 — 359.5 3,703.5 — 627.9 3,307.0— 291.2 627.9 449.6 3,307.0 291.2 919.0 449.6 3,756.5 919.0 3,756.5 — 749.2 2,655.4 304.7 447.1 1,053.9 3,102.5 — 357.4 3,703.5 2.1 — 359.5 3,703.5 1 1 1 1 1 Oceania East Middle and Others Subtotal Affiliates Total Oceania Middle East and Others Subtotal Affiliates Total Asia and Caspian Sea Area Equity-Method Asia and Caspian Sea Area Equity-Method Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas (MMbbls) (Bcf) (MMbbls) (Bcf) (MMbbls) (Bcf) (MMbbls) (Bcf) (MMbbls) (Bcf) (MMbbls) (Bcf) (MMbbls) (Bcf) (MMbbls) (Bcf) (MMbbls) (Bcf) (MMbbls) (Bcf) (MMbbls) (Bcf) (MMbbls) (Bcf) 2. MMbbls: Millions of barrels 3. Bcf: Billions of cubic feet 4. Crude oil includes condensate and LPG discoveriesprevious estimates — (0.6) (127.7) 31.7 (0.3) — — (40.2)discoveries — — — (41.1)previous estimates (127.7) — — (27.3) (0.4) (364.0) 206.4 — — — — (41.4) 31.7 (127.7) — (5.0) 1.8 449.6 — — 174.1 1.8 (364.0) — 481.3 35.6 — (2.5) 209.7 — (366.4) — — — — — discoveriesprevious estimates 32.0 (4.4) 177.7 424.2 — 0.2 — — — 1.6 — — 32.0 (2.6) 177.7 424.2 (2.9) — 22.0 — (5.5) 446.2 32.0 177.7 Extensions and Acquisition and salesRevision of —Interim production — (18.9) 361.1 (300.6) (26.3) —Extensions and — — (4.4)Acquisition and sales —Revision of — — 361.1 (49.6)Interim production (300.6) — (20.6) — (16.3) 308.3 (287.6) — — (26.6) — (70.2) — — (300.6) 669.4 (9.9) — — — — (52.8) (287.6) (22.0) — — — (74.8) (287.6) — — — — Extensions and Acquisition and sales 12.7Revision of 34.1Interim production — (15.4) (295.6) — (1.7) 177.9 — — (3.7) 190.6 — 34.1 (20.8) (2.2) (295.6) (24.6) (1.0) 188.4 (1.7) (21.8) 9.5 (297.3) As of March 31, 2005 148.4 3,307.0 348.3 — 131.2 * As of March 31, 2004 167.8 3,703.5 13.8 — 175.8 * As of March 31, 2005 148.4 3,307.0 348.3 — 131.2 * As of March 31, 2006 104.7 2,655.4 528.2As of March 31, 2006 65.7 — 1,447.6 116.3 * 527.4 — 44.1 — 637.2 1,447.6 303.3 — 940.4 1,447.6 As of March 31, 2006 22As of March 31, 2006 886 21 — 825 — — 14 — 120 14 36 108 1,006 35 — 933 — — 36 — 1,006 35 933 As of March 31, 2003 143.0 3,363.1 15.3 — —As of March 31, 2004 — 167.8 3,703.5 158.2 3,363.1 13.8 8.2 — 4.3 175.8 * 166.4 3,367.4 undeveloped reserves undeveloped reserves Proved developed reserves Proved developed and Proved developed reserves Notes: 1. Includes reserves attributable to a consolidated subsidiary in which there is a 49% minority interest. Teikoku Oil Group Proved developed and INPEX Group Proved Reserves dates. LPG and natural gas as of their respective proved reserves of crude oil, condensate, The following charts list of Financial Accounting Standards No. 69. reserves are based on the U.S. Statement Disclosure items of proved DATA TEIKOKU INPEX 102 NE odnsInc. Holdings INPEX Share ofequitymethodinvestees’standardizedmeasure Share ofequitymethodinvestees’standardizedmeasure uuentcs lw ,0,1 ,5,4 4,3 503,843 143,031 AreaandOthers (148,720) MiddleEast 1,055,343 823,434 ¥ 1,702,217 Oceania (2,374,034) 3,603,192 ¥ (841,928) ¥2,767,694 Total 7,194,320 (3,364,682) ¥ (170,871) Notes: Includes¥306,240millionattributabletoaconsolidatedsubsidiaryin which thereisa49%minorityinterest. (1,086,127) (870,423) 411,350 (2,127,421) 10% annualdiscountforestimatedtimingof 107,875 Future netcashflows AreaandOthers Future incometaxexpenses 963,409 (123,042) MiddleEast Future productionanddevelopmentcosts 715,136 ¥ 1,482,634 Future cashinflows Oceania (1,083,213) 1,766,276 ¥ Consolidated subsidiaries (755,382) ¥2,618,749 Total (180,744) 5,100,161 (1,961,637) As ofMarch31,2006 ¥ (575,188) Notes: Includes¥230,706millionattributabletoaconsolidatedsubsidiaryinwhichthereis49%minorityinterest. (899,958) (1,655,890) 10% annualdiscountforestimatedtimingof Future netcashflows Future incometaxexpenses Future productionanddevelopmentcosts Future cashinflows Consolidated subsidiaries As ofMarch31,2005 INPEX Group upon existinglawsandregulations.Thediscountis the taxcostofoilandnaturalgaspropertiesbased estimated futurepretaxcashflowsafterprovisionfor calculated byapplyingtheyear-endstatutoryrateto ing, andregulatoryconditions.Futureincometaxesare assume thecontinuationofexistingeconomic,operat- mated baseduponconstantpriceassumptionsand future cashinflows.Futuredevelopmentcostsareesti- future productionfromprovedreservestodetermine assumptions areappliedtoourestimatedannual future netcashflows,year-endconstantpriceandcost In calculatingthestandardizedmeasureofdiscounted and GasReserves Standardized MeasureofDiscountedFutureNetCashFlowsandChangesRelatingtoProvedOil Standardized measureofdiscountedfuture Standardized measureofdiscountedfuture e ahfos1064969936,9 306,240* 1,740 60,296 639,933 21,904 1,006,469 25,619 49,263 230,706* 712 57,009 of discountedfuturenetcashflows 549,749 17,754 net cashflows 837,464 17,267 35,733 of discountedfuturenetcashflows net cashflows cash flows cash flows 6578 4540 8,3)(197,603) (82,735) (415,410) (695,748) (180,644) (50,866) (413,660) (645,170) 31, 2005and2006,respectively. rates of¥107.41and¥117.47=US$1.00asMarch Accounting StandardsNo.69.Weusetheexchange items arebasedontheU.S.statementofFinancial change constantlyfromyear-endlevels.Disclosure use ofa10%discountrateisarbitrary,andprices economic valueisattributedtopotentialreserves,the or thepresentvalueofestimatedcashflowssinceno the fairmarketvalueofoilandnaturalgasreserves the estimatedfuturenetcashflows. computed byapplicationofa10%discountfactorto We believethatthisinformationdoesnotrepresent saadCaspianSea Asia and CaspianSea Asia and Millions ofyen Millions ofyen INPEX Holdings Inc. 103

As of March 31, 2006 Millions of yen Asia and Caspian Sea Consolidated subsidiaries Total Oceania Middle East Area and Others

Standardized measure, beginning of period ¥ 837,464 ¥ 549,749 ¥ 57,009 ¥230,706 Changes resulting from: Sales and transfers of oil and gas produced, INPEX net of production costs (278,021) (177,630) (73,434) (26,957) Net change in prices, and production costs 398,010 177,041 150,082 70,887 Changes in estimated development costs 79,153 80,211 (23,147) 22,089 Revisions of previous quantity estimates 221,444 (139,481) 396,873 (35,948) Accretion of discount 193,215 97,401 64,895 30,919 Net change in income taxes (413,857) (33,000) (368,473) (12,384) Other (30,939) 85,642 (143,509) 26,928 Standardized measure, end of period 1,006,469 639,933 60,296 306,240

Teikoku Oil Group TEIKOKU As of March 31, 2006 Millions of yen Asia and Caspian Sea Consolidated subsidiaries Total Oceania Middle East Area and Others

Future cash inflows ¥ 965,784 ¥ 848,888 ¥ — ¥116,896 Future production and development costs (221,843) (164,669) — (57,174) Future income tax expenses (120,929) (109,778) — (11,152) Future net cash flows 623,012 574,441 — 48,571 10% annual discount for estimated timing of cash flows (343,706) (326,735) — (16,972) Standardized measure of discounted future net cash flows 279,305 247,706 — 31,599 Share of equity method investees’ standardized measure DATA of discounted future net cash flows — — — —

Probable Reserves as of March 31, 2006 The following charts list probable reserves of crude oil, condensate, LPG and natural gas.

INPEX Group

Interest in Reserves Held by Asia and Caspian Sea Area Equity-Method As of March 31, 2006 Oceania Middle East and Others Subtotal Affiliates Total

Crude oil, condensate and LPG (MMbbls) 67 495 462 1,025 456 1,481 Natural gas (Bcf) 1,810 — 123 1,932 142 2,074

Teikoku Oil Group

Interest in Reserves Held by Asia and Caspian Sea Area Equity-Method As of March 31, 2006 Oceania Middle East and Others Subtotal Affiliates Total

Crude oil, condensate and LPG (MMbbls) 5 — 7 12 — 12 Natural gas (Bcf) 184 — 66 250 — 250 Note: 1. MMbbls: Millions of barrels 2. Bcf: Billions of cubic feet DATA TEIKOKU INPEX 104 NE odnsInc. Holdings INPEX 2 Oil andGasProduction Notes: CrudeoilincludescondensateandLPG. 2005 2004 Crude oil Fiscal yearendedMarch31 INPEX Group region. Theproportionalinterestsinproductionbyourequity-methodaffiliatesarenotbrokendowngeographicalregions. The followingchartlistsaveragedailyproductionforcrudeoil,naturalgas,andthetotalofoilgasby nulpouto Mlin fbres 1870.3 21.8 Natural gas Annual production(Millionsofbarrels) nulpouto Mlin fbreso i qiaet 14120.4 71.4 300.6 297.3 Annual production(Millionsofbarrelsoilequivalent) Crude oilandnaturalgas Annual production(Billionsofcubicfeet) saadOena4. 51.5 42.3 Middle East Asia andOceania apa e raadOhr 0112.1 10.1 56.8 — 3.5 — — Proportional interestinproductionbyequity-methodaffiliates Caspian SeaAreaandOthers 4.6 12.1 10.1 Proportional interestinproductionbyequity-methodaffiliates 56.8 Caspian SeaAreaandOthers 2.7 Proportional interestinproductionbyequity-methodaffiliates Caspian SeaAreaandOthers saadOena899823.5 809.9 Middle East Asia andOceania saadOena173188.8 177.3 Middle East Asia andOceania uttl120273.0 192.0 823.5 809.9 Total Subtotal Total Subtotal Total Subtotal JODCO’s netproductionincludesroyalties. (Thousands ofbarrelsperday) (Millions ofcubicfeetperday) (Thousands ofbarrelsoilequivalentperday) 9. 329.8 195.5 823.5 814.5 98192.6 135.8 59.8 57.0 . 72.2 4.7 . 72.2 4.7 —— 275.8 787.8 204.7 144.5 787.8 122.7 336.0 287.6 787.8 176.1 2006 60.2 27.1 60.2 27.1 74.7 72.7 72.7 44.7 — — — INPEX TEIKOKU DATA 105 — — — — 5.6 1.6 1.6 3.2 97.8 19.5 41.8 43.5 15.9 13.7 15.3 61.7 10.5 71.2 22.4 2005 169.0 169.0 INPEX Holdings Inc. — — — 3.0 90.8 18.1 40.7 42.0 14.0 15.3 2004 160.0 160.0 (Thousands of barrels of oil equivalent per day) (Millions of cubic feet per day) (Thousands of barrels per day) (Thousands of barrels per Subtotal Total Subtotal Total Subtotal Total Asia and Oceania Middle East Asia and Oceania Middle East Caspian Sea Area and Others affiliatesProportional interest in production by equity-method 1.3 22.5 Caspian Sea Area and Others affiliatesProportional interest in production by equity-method — 69.2 Caspian Sea Area and Others production by equity-method affiliatesProportional interest in 1.3 11.0 Asia and Oceania Middle East Annual production (Millions of barrels of oil equivalent) 15.3 Natural gas Annual production (Millions of barrels)Annual production (Billions of cubic feet)Crude oil and natural gas 5.6 58.4 Note: Crude oil includes condensate and LPG. Crude oil Teikoku Oil Group 31 Fiscal year ended December DATA TEIKOKU INPEX 106 NE odnsInc. Holdings INPEX INPEX CORPORATION As ofMarch31,2006 Subsidiaries andAffiliates Consolidated Subsidiaries NE rdn,Ld 5,0 0.0 Sales,agency,andbrokerageofcrude oiland Managementofownedproperties andfacilities 100.00% 100.00% ¥50,000 ¥65,000 INPEX Trading,Ltd. INPEX Services,Ltd. Investmentinpipelineconstructioncompany 100.00% Exploration,development,productionandsales US$53,300 51.00% ¥53,594,000 INPEX SouthwestCaspianSea,Ltd. INPEX BTCPipeline,Ltd. Explorationanddevelopmentofoilnatural BlockinOffshoreEastKalimantan,Indonesia 52.31% Beingdissolved ¥14,753,000 54.18% Exploration,development,productionandsales ¥3,243,000 83.50% Beingdissolved Beingdissolved ¥4,804,000 100.00% INPEX Masela,Ltd. 100.00% ExplorationofoilandnaturalgasinSaliki ¥268,000 INPEX NorthMakassar,Ltd. ¥577,000 Beingdissolved 100.00% Exploration,development,productionandsales 100.00% ¥973,000 100.00% ¥1,020,000 INPEX Jawa,Ltd. ¥1,020,000 INPEX EastArguni,Ltd. INPEX WestArguni,Ltd. Beingdissolved Mahakam,Ltd. INPEX OffshoreNortheast 100.00% INPEX NorthNatuna,Ltd. ¥5,000,000 ¥1,345,000 INPEX Tengah,Ltd. INPEX OffshoreSouthSulawesiLtd. INPEX Natuna,Ltd. NE fsoeNrhMhkm t.¥,0,0 100.00% ¥3,300,000 INPEX OffshoreNorthMahakam,Ltd. NE iy,Ld 1000100%Explorationofoilandnaturalgasin the42-2& 100.00% ¥180,000 95.00% ¥2,500,000 Appraisalanddevelopmentof AzadeganOil Exploration,development,productionandsales INPEX Libya,Ltd. 100.00% 100.00% 45.00% INPEX ABK,Ltd. Explorationanddevelopmentofoilnatural ¥7,950,000 ¥18,800,000 Exploration,development,productionandsales Azadegan PetroleumDevelopment,Ltd. ¥46,780,000 100.00% 100.00% Japan OilDevelopmentCo.,Ltd. ¥2,722,000 InvestmentinLNGplantoperatingcompanyand ¥4,600,000 Exploration,development,productionandsales INPEX NorthCaspianSea,Ltd. 100.00% 100.00% A$63,241 ¥3,814,000 100.00% INPEX TimorSea,Ltd. ¥22,240,000 Exploration,development,productionandsales INPEX Sahul,Ltd. 100.00% INPEX DLNGPLPtyLtd ¥400,000 INPEX Alpha,Ltd. INPEX Browse,Ltd. INPEX Sumatra,Ltd. opn ae(huad edb s()Mainbusiness heldbyus(%) (thousand) Company Name sudCptlVotingrights Issued Capital 100.00% market researchandsalesplanningin connection of oilandnaturalgasinOffshoreNorthwestJava of oilandnaturalgasinTengahBlockOffshore oil andnaturalgasinSouthNatunaSeaBlockB, Exploration, development,productionandsalesof East Kalimantan,Indonesia Block inOffshoreEastKalimantan,Indonesia Exploration ofoilandnaturalgasinEastKalimantan Indonesia with oilandnaturalgassales Arab Jamahiriya 4 BlockintheGreatSocialistPeople’sLibyan Arab Emirates sales of Exploration, development,productionand Field, Iran of oilinADMABlock,UnitedArabEmirates in OffshoreNorthCaspianSeaBlock,Kazakhstan Exploration anddevelopmentofoilnaturalgas of oilinACGOilFields,Azerbaijan gas inJPDA03-01BlocktheTimorSeaJPDA Timor SeaJPDA of oilandnaturalgasinJPDA03-12Blockthe operation ofpipelinebusinesses of oilandnaturalgasinWA-10-LBlock,Australia in WA-285-PBlock,Australia Exploration anddevelopmentofoilnaturalgas gas inMaselaBlock,Indonesia Sumatra Block,Indonesia of oilandnaturalgasinOffshoreSoutheast Block, Indonesia oil inAbuAlBukhooshBlock,United INPEX Holdings Inc. 107

Teikoku Oil Co., Ltd. Issued Capital Voting rights Company Name (thousand) held by us (%) Main business Teikoku Oil (Con Son) Co., Ltd. ¥200,000 100.00% Exploration and development of oil in the south- ern offshore of the Socialist Republic of Vietnam

Teikoku Oil (Venezuela) Co., Ltd. ¥8,189,000 100.00% Reactivation of oil and gas fields, exploration and INPEX development of new fields based on the Operating Service Agreement in the East Guarico Unit and Sanvi- Guere Unit, the Bolivarian Republic of Venezuela Teikoku Oil SCT Exploration B.V. 10,200 100.00% Exploration and development of natural gas in the San Carlos and Tinaco blocks in the Bolivarian Republic of Venezuela Teikoku Oil (North America) Co., US$4,303 100.00% Exploration and development of oil in the Ltd. United States of America Teikoku Oil Ecuador US$36 100.00% Exploration, development and production of oil in the eastern onshore of the Republic of Ecuador Teikoku Oil Venezuela, B.V. 18 100.00% Financing for reactivation, new exploration and development of oil and gas fields in the Bolivarian Republic of Venezuela

Teikoku Oil de Venezuela, C.A. Bs 2,000 100.00% Reactivation of oil and gas fields, exploration and TEIKOKU development of new fields based on the Operating Service Agreement in the East Guarico Unit, the Bolivarian Republic of Venezuela Teikoku Oil de Sanvi-Guere, C.A. Bs 2,000 100.00% Reactivation of oil and gas fields, exploration and development of new fields based on the Operating Service Agreement in the Sanvi-Guere Unit, the Bolivarian Republic of Venezuela Teikoku Gas Venezuela, C.A. Bs 2,000 100.00% Exploration and development of natural gas in the San Carlos and Tinaco Blocks in the Bolivarian Republic of Venezuela Teikoku Oil Libya UK Ltd US$11,055 100.00% Exploration and development of oil in the western onshore of the Great Socialist People’s Libyan Arab Jamahiriya

Teikoku Oil Suez SEJ Co., Ltd. ¥785,500 100.00% Exploration and development of oil in the Gulf of DATA Suez, the Arab Republic of Egypt Teikoku Oil Algeria Co., Ltd. ¥708,500 100.00% Exploration and development of oil and natural (El Ouar) gas in the eastern onshore of the People’s Democratic Republic of Algeria Teikoku Oil Algeria Co., Ltd. ¥337,500 100.00% Being dissolved Teikoku Oil Suez SOB Co., Ltd. ¥146,000 100.00% Exploration and development of oil in the Gulf of Suez, the Arab Republic of Egypt Teikoku Oil Nile NQR Co., Ltd. ¥37,000 100.00% Exploration and development of oil in western desert of the Arab Republic of Egypt Teikoku Oil (D.R. Congo) Co., Ltd. ¥10,000 100.00% Exploration, development, production and sales of oil in the Democratic Republic of the Congo Teikoku Oil Company Panama, S.A. US$10 100.00% Sales of crude oil developed overseas The Egyptian Petroleum ¥10,722,000 45.73% Exploration, development, production and sales Development Co., Ltd. of oil in the West Bakr Block of the Arab Republic of Egypt Teiseki Drilling Co., Ltd. ¥100,000 100.00% Geothermal production wells, crust activity observation wells, wells for hot springs, civil engineering Teiseki Real Estate Co., Ltd. ¥100,000 100.00% Real estate rental, management and insurance agency services Teiseki Pipeline Co., Ltd. ¥100,000 100.00% Natural gas transportation, pipeline operation, maintenance and management Teiseki Propane Co., Ltd. ¥80,000 100.00% Sales of LPG and petroleum products Teiseki Topping Plant Co., Ltd. ¥70,000 100.00% Petroleum refining related production, storage and shipment of petroleum products DATA TEIKOKU INPEX 108 NE odnsInc. Holdings INPEX Teikoku OilCo.,Ltd. INPEX CORPORATION Affiliates underEquityMethod a-ciOlDvlpetC.Ld 100032.10% ¥100,000 Dai-ichi OilDevelopmentCo.,Ltd. Exploration,development,productionand sales 44.00% 656,279 Citygas,LPGsales 62.00% MI BerauB.V. Warehousingservices ¥60,000 94.00% ¥100,000 Saitama GasCo.,Ltd. Daiichi WarehouseCo.,Ltd. otn N ri netet ¥0004.0 FinancingforconstructionofLNGproduction 40.00% FinancingforconstructionofLNGproduction ¥50,000 40.00% ¥50,000 Ltd. Bontang LNGTrainHInvestment, Ltd. Bontang TrainGProjectFinance, Equipmentandmaterialsshipping,transport 100.00% SupplyofnaturalgastoTokyoElectricPower ¥10,000 100.00% ¥10,000 Teiseki TransportSystemCo.,Ltd. Offshore IwakiPetroleumCo.,Ltd. aa hntOl&GsC. t. 6400015.00% ¥6,400,000 Japan OhanetOil&GasCo.,Ltd. projectsconductedbyAbuDhabiMarineAreas Financingforoilandnaturalgasexploration LeaseofproductionfacilitiesinAlbacoraBlock Exploration,development,productionandsales Developmentandproductionofoilnatural 37.50% 50.00% 19.60% 25.00% ¥6,152,000 R$6,525 Exploration,development,productionandsales ¥8,000,000 Exploration,development,productionandsales 37,868 25.00% INPEX OffshoreNorthCampos,Ltd. 25.00% Financingforoilexplorationand development ¥2,996,000 Albacora JapãoPetróleoLimitada 45.00% ¥6,400,000 Angola JapanOilCo.,Ltd. £50 FinancingforrepaymentofLNGproduction AJOCO’ 91ExplorationCo.,Ltd. 30.00% AJOCO ExplorationCo.,Ltd. ¥20,000 JJI S&NB.V. Company Ltd. BP-Japan OilDevelopment Project FinanceBLRE,Ltd. opn ae(huad edb s()Mainbusiness heldbyus(%) (thousand) Company Name opn ae(huad edb s()Mainbusiness heldbyus(%) (thousand) Company Name sudCptlVotingrights Issued Capital sudCptlVotingrights Issued Capital oil andnaturalgas,investmentloansfor Exploration, development,productionandsalesof facility inBontangAreaEastKalimantan, Indonesia facility inBontangAreaEastKalimantan, of naturalgasinBerauBlockPapua,Indonesia sales ofpetrochemicalproducts Co., Inc.’sHironothermalpowerstation Republic ofAlgeria southeastern onshoreofthePeople’sDemocratic Development andproductionofnaturalgasinthe businesses relatedtosuchprojects Petróleo Limitada development projectsconductedbyFradeJapão in OffshoreNorthCampos,Brazil of oilinOffshore3/05Block,Angola of oilinOffshore3/91Block,Angola of oilinOffshore3/85Block,Angola gas inOffshoreSorooshField,Iran Ltd. Indonesia facility inBontangAreaEastKalimantan, Indonesia INPEX Holdings Inc. 109

Corporate Data Stock Information (As of April 3, 2006)

í Company Name í Share Data INPEX Holdings Inc. Authorized Shares í Established 9,000,000 common shares April 3, 2006 1 special class share

í Capital Number of Shareholders / Issued and Outstanding Shares ¥30 billion (As of April 3, 2006) Common shares: 48,088 shareholders / 2,358,409.13 shares í Company Headquarters Special class share*: 1 shareholder (Minister of Economy, 4-1-18 Ebisu, Shibuya-ku, Tokyo, 150-0013, Japan Trade and Industry) /1 share í Number of Employees (Consolidated) Note: The Company’s Articles of Incorporation stipulate that certain major 1,710 (As of April 3, 2006) corporate decisions require a resolution by the holder of the special class share in addition to the approval of the shareholders’ meeting or í Main Business Board of Directors. Management of subsidiaries and group companies engaged in surveys, exploration, development and production of oil, natural gas and other energy resources. í Shareholding by Shareholder Type*1 Financial Institutions Individuals and Other: 4.87% (Including Trust Accounts): 14.88% Shareholders: 46,791 Shareholders: 177 Shares: 114,845.15 Shares: 350,861.88 í Organization Chart Foreign Corporations and Other: 9.26% Securities Companies: 1.25% Shareholders’ Meeting Shareholders: 462 Shareholders: 63 Board of Auditors Shares: 218,249.49 Shares: 29,532.62 Board of Directors Minister of Economy, Trade Other Domestic and Industry*2: 29.35% Corporations: 40.39% Management Committee Shareholders: 1 Shareholders: 594 Shares: 692,307.75 Shares: 952,612.24

President Compliance Committee Notes: 1. Shareholding ratios are for all issued and outstanding shares 2. Excludes one special class share

Internal Audit Unit í Major Shareholders (Common Shares) Administration Division • Secretary Unit Number of Holding Name • General Administration Unit Shares (%) • Human Resources Unit Minister of Economy, Trade and Industry 692,307.75 29.35 Corporate Strategy & Planning Division Japan Petroleum Exploration Co., Ltd. 267,232.68 11.33 • Corporate Strategy & Planning Unit • Corporate Communications Unit Mitsubishi Corporation 193,460.40 8.20 • Overseas Project Planning & Coordination Unit Mitsui Oil Exploration Co., Ltd. 176,760.00 7.49 • Domestic Project Planning & Coordination Unit Nippon Oil Corporation 89,919.06 3.81 Accounting, Finance & IT System Division The Master Trust Bank of Japan, Ltd. 81,330.44 3.45 • Accounting & Finance Unit (Trust Account) • IT System Unit Japan Trustee Services Bank, Ltd. (Trust Account) 72,547.24 3.08 Technology Division Sumitomo Corporation 46,878.00 1.99 • Technology Planning Unit • Operator Project Support Unit Marubeni Corporation 46,446.00 1.97 • HSE Unit JFE Steel Corporation 29,460.00 1.25 INPEX Holdings Inc. 17th floor, Ebisu Neonato, 4-1-18, Ebisu, Shibuya-ku, Tokyo, 150-0013 Japan Tel:+81-3-5448-0200 http://www.inpexhd.co.jp/

Printed in Japan on recycled paper.