Japan Petroleum Exploration Co., Ltd.

Revenue and operating income of domestic and overseas E&P businesses and the Infrastructure & Utility business are significantly affected by fluctuations in crude oil and natural gas prices, with a US$1/barrel change in oil price estimated to increase or decrease operating income by ¥760 million in FY2027 (ending March 2027). A downward revision of medium- to long-term assumed selling prices could also result in impairment losses on business assets. The Company addresses this through partial use of derivative transactions and review of its business portfolio, but complete avoidance of the risk is difficult.

Since the yen-denominated selling prices of domestically produced crude oil and natural gas are linked to the US dollar/yen exchange rate, exchange rate fluctuations directly affect revenue and operating income; a ¥1/US dollar depreciation (appreciation) of the yen is estimated to increase (decrease) operating income by ¥470 million in FY2027 (ending March 2027). It also affects the selling prices of natural gas and electricity derived from imported LNG, but since procurement prices fluctuate similarly, there is a certain offsetting effect. The Company seeks to reduce the impact through continuous monitoring of exchange rate trends and partial use of derivative transactions.

In overseas E&P businesses located in regions with relatively high country risk, such as Iraq and Russia, political, economic, and social turmoil, as well as changes in laws and tax systems, may adversely affect smooth business execution and operating results. Due to the intensifying situation in the Middle East, the resumption timing of operations at the Garraf oil field in Iraq remains uncertain, and the Company is assuming a full-year suspension of production and shipment, which is also expected to increase alternative LNG procurement costs. The Company addresses this through enhanced diversification of LNG procurement sources and continuous gathering of local information, but uncertainty remains high.

The transition to a decarbonized society driven by the Paris Agreement may impair business value through declining demand for oil and natural gas and depressed selling prices. There is also a risk that the global trend toward decarbonization could make it difficult to raise financing for E&P businesses from financial institutions or to conclude non-life insurance contracts. The Company is identifying risks and opportunities and pursuing necessary initiatives based on TCFD recommendations, but the pace and scale of the transition could significantly affect its business model.

In the domestic Infrastructure & Utility business, a decline in natural gas volumes handled due to factors such as population decline associated with the falling birthrate and aging population, reduced facility utilization rates among customers, and intensifying competition may adversely affect operating results. The Company addresses this through developing new demand via pipeline extensions and LNG satellite supply, providing area-wide energy supply to industrial parks and similar sites, and offering solutions such as carbon offset products. However, continuous efforts are required to maintain and expand demand amid the structural trend of population decline.

In operations such as well drilling, crude oil and natural gas production and transportation, and LNG storage, vaporization, and transportation, a large-scale disaster such as an earthquake or a pandemic could cause human and physical damage and operational suspension, as well as secondary damages such as lost revenue from sales disruption, compensation claims, environmental contamination, and reputational decline. The Company addresses this through BCP development, regular disaster prevention drills, facility design and operation manuals based on HSE risk assessments, and the conclusion of non-life insurance contracts.

The E&P business requires long-term, substantial investment from exploration through production, and involves a wide range of investment risks, including failure to achieve resource volume targets due to geological uncertainty, cost overruns and schedule delays in equipment and materials during the development stage, declines in reserves and production volumes, and cost overruns in decommissioning and mine closure estimates. These risks could give rise to investment losses that adversely affect operating results and financial position. The Company manages these risks through careful investment decisions by the Investment Evaluation Committee, risk diversification through joint ventures, regular monitoring by the Management Risk Committee, and agile responses including asset replacement and divestiture.

Under the "JAPEX Management Plan 2026-2035," the Company aims to build a "core asset group" through concentration on overseas E&P and CCUS, but failure to secure new projects or establish new businesses as planned could adversely affect operating results. The Company has established a framework including concentration of overseas E&P in the United States, Norway, and Southeast Asia, the establishment of a dedicated domestic CCS business division, and progress management by the Carbon Neutral Business Promotion Committee. It also seeks to strengthen its execution capabilities through the planned development of personnel for key positions and the recruitment of external talent.

With the diversification and sophistication of cyberattack methods, system failures or information leaks could result in suspension of oil and gas field production operations, litigation costs, and loss of public trust, adversely affecting operating results. The Company addresses this through establishing a management framework under the Information Security Committee, implementing multi-layered defense measures, continuous monitoring, and regular vulnerability assessments, developing a CSIRT-centered incident response framework, and conducting regular employee training and targeted phishing email drills.

The Minister of Economy, Trade and Industry held 37.84% of the Company's shares as of the end of FY2026 (ending March 2026), and depending on the future timing, method, and volume of any sale, this could affect the Company's share price and credit ratings. The Company addresses this through active IR and public relations activities to cultivate long-term stable shareholders, and through sustained enhancement of corporate value and expanded shareholder returns based on its management plan.