Inpex Corporation (1605) Earnings Call Transcript & Summary

Thank you for attending our investor meeting despite your busy schedules. I am Takayuki Ueda, President and CEO of INPEX Corporation. I will begin with corporate overview, and then I will explain our business development strategy towards our net zero carbon society and then update you on the progress made against our medium-term business plan. I will be followed by Mr. Yamada, who will explain our financial results as well as financial forecast. Let me start with the corporate overview for the fiscal year ended December 2020. First is financial results for the full year. I will leave it to Mr. Yamada to explain the details in his part, and I will just give you the key numbers. INPEX posted consolidated net sales of JPY 771 billion and net loss attributable to owners of parent of JPY 111.6 billion for the fiscal year. Our income before one-off profits and losses came to a positive JPY 54.6 billion. However, the significant drop in the oil price caused us to reevaluate our assets and as a consequence, we had to recognize one-off losses, including an impairment charge of JPY 189.9 billion for the year. Accordingly, we ended up with a better result of JPY 111.6 billion in net loss. Regarding the fiscal year ending December 21, we are forecasting consolidated net sales of JPY 883 billion and net profit attributable to owners of parent of JPY 100 billion, supported by the recent recovery in oil prices to a certain extent. As for dividend, despite the significant deterioration in our results due to one-off items in the fiscal year ended December 2020, we are still planning to pay a total of JPY 24 per share, made up of interim dividend of JPY 12 and year-end dividend of JPY 12 for the fiscal year ended December 2020. Regarding dividends for this fiscal year, we are projecting to pay JPY 27 per share, up JPY 3 from the level of previous fiscal year at JPY 24 per share, based on the assumption that our performance will recover to a certain level. Having said that, we will determine the actual amount of dividends to be paid at the interim and year-end timing after closely reviewing business environment at the time such as oil prices. On the topic of corporate highlights, we declared our business development strategy towards a net zero carbon society and announced a change to our Japanese corporate name, which is now also INPEX on the 27th of January, 2021. I will cover this topic in more detail later in my presentation. During last year, we strive to reduce investments in costs and to secure liquidity and free cash flow in order to quickly respond to the low oil price environment. These efforts will be continued in 2021 and beyond, with the intent of raising the level of our financial performance. We will do our utmost to ensure stable supply of energy by continuing to implement thorough measures against the COVID-19 pandemic. I'll give you the updates concerning individual projects starting from the next page. First, please allow me to update you on the Ichthys LNG Project. Operation continued quite steadily during the fiscal year, and we shipped a total of 122 LNG cargoes during the year. The average production volume from the Ichthys project was approximately 357,000 barrels per day between October and December of 2020. As for maintenance during the current fiscal year, we are planning to shut down the facility for about a 1-month period during the first half of 2021 for some maintenance work needed to ensure safe and stable operation. We will also continue with the drilling of production wells in 2021 to ensure that the plateau level of production can be maintained for that long term. Next, I would like to talk about the exploration blocks in the vicinity of the Ichthys field. INPEX has so far proactively acquired participating interest and carried out exploration in the blocks located around the Ichthys field in due consideration of its high potentiality. Currently, we have participating interests in 18 exploration blocks in the vicinity of the Ichthys LNG Project. And so far, we have found a number of gas structures and confirm that they spread across at least 9 of our exploration blocks. From that medium to long-term perspective, we will continue to study these peripheral gas structures proactively with the intent of leveraging existing Ichthys facilities towards realizing competitive development and production. Next, I would like to talk about the Abadi LNG Project. Abadi LNG Project is a large-scale project that will produce approximately 9.5 million tons of LNG per year, up to 150 million cubic feet of natural gas per day to be supplied by pipeline to meet the local gas demand and up to 35,000 barrels of condensate per day. In 2019, the Indonesian authorities approved the revised plan of development. The government authority also approved our application for a 7-year additional time allocation and a 20-year extension to the production sharing contract, PSC. Accordingly, the term of the PSC for the Masela Block was extended to 2055. Furthermore, we signed MOUs last year with a national electricity company, a national fertilizer company and a national gas company, each concerning long-term domestic LNG and pipeline natural gas supply in Indonesia. Although COVID-19 is expected to cause some delays, we are continuing to prepare for feed with the intent of commencing the work as early as possible. Our intent is to start production from the Abadi LNG Project in the latter half of the 2020s, and we will continue to advance our efforts towards the realization of this goal. Next, I would like to talk about the projects that serve as our business foundation, namely the projects in Abu Dhabi, Kazakhstan and Azerbaijan. As you can see on the slide, the projects are continuing to operate stably with some projects heading towards production enhancements. In addition to projects in production and under development in Abu Dhabi, we also have an exploration project in the country, Block 4. As the operator, we are now engaged in the assessment of the block and preparations for drilling, and we are scheduled to commence the drilling work around April this year. Please allow me to give you an update regarding projects that are not on this slide. In Vietnam, we have been working on the development of the Sao Vang and Dai Nguyet gas fields. Of these, we were able to start gas sales from the Sao Vang gas field in November 2020. In January this year, we were awarded 2 licenses in Norway, namely for PL 1130 and PL 1129. We consider the Norwegian sea to be one of our promising areas and we are hopeful of discovering new oil and gas fields there in the future. Furthermore in February this year, we acquired an additional portion, 2.35% of the participating interest in Lucius and Hadrian North field in the United States. As a consequence, our participating interest rose from around 7.75% to around 10.11%. Next, I would like to explain our initiatives concerning our natural gas business in Japan as well as our efforts regarding renewable energy and carbon recycling. In our natural gas business in Japan, sales volume for the fiscal year ended December 2020 came to approximately 2.07 billion cubic meters. We implemented various measures to fight as much as possible the drop in demand caused by the expanding COVID-19 pandemic. In this respect, we were positively impacted by poor weather and the cool temperature experienced since December last year. And as a consequence, we saw a significant increase in gas demand this winter in comparison to normal years. We will continue to work towards achieving as early as possible, our goal of 2.5 billion cubic meters of annual gas supply. In regards to renewable energy and carbon recycling efforts, we continue the commercial operations of the Sarulla geothermal IPP project in Indonesia. We also continued with an environmental impact assessment in Akita Prefecture, with a view to building a geothermal power station, and we commenced flow tests at the site in 2020. In Niigata Prefecture, we built a methanation testing facility for synthetically producing methane from carbon dioxide and hydrogen. The facility is now being fully commissioned and is currently undergoing various test operations. We are starting to potentially increase the scale of the facility. In May last year, we joined a consortium for an offshore wind power project in Akita Prefecture. Also as a member of ABCAM, Japan Technological Research Association or artificial photosynthetic chemical process, we are responsible for developing the technology for solar hydrogen production that does not emit carbon dioxide during the production phase. In December last year, we set up artificial photosynthesis panels in our testing facility in Darwin, where our Ichthys onshore plant is located, when we are now validating the panel performance. These are the first artificial photosynthesis panels to be located in a region with a large amount of sunlight, and as such, constitute an important step towards commercialization. Next, I would like to explain our net production volume for the fiscal year ended December 2020. Our net production volume for the fiscal year was 573,000 barrels per day. This was a slight increase over the same period last year, achieved partially as a result of the quick introduction of COVID-19 countermeasures, which prevented us from having to stop production unexpectedly at our facilities. And as a result of high availability achieved at Ichthys. INPEX is currently shifting its focus from oil to gas, and our ratio of production between oil and gas is now at 60% oil and 40% gas. This page describes trends in production cost indices regarding production volume and reserves and the actual amounts of proved and probable reserves. Production cost per barrel was $5.20 during the fiscal year ended December 2020. Proved reserves as at the end of December 2020 fell somewhat in comparison to the end of the previous fiscal year. Next is our investment and cost-reduction measures. In fiscal year 2020, the initial target of reducing the cost of development and exploration by 20% or more and 40% or more, respectively, was exceeded with the actual reduction of 37% and 64%, respectively, compared to the initial target based on due diligence efforts. We will continue cost reduction and optimization in all areas, including investments, OpEx and management expenditures. Next is the measures to secure sufficient liquidity and free cash flow. At present, we have abundant funds and have secured commitment lines with sufficient volume and duration from our core banks. The available funds, as of December 31, 2020, were approximately JPY 200 billion. We expect to secure approximately JPY 185 billion in free cash flow for fiscal year 2021. As the recent oil price appears to be recovering to a certain degree, we hope to continue maintaining liquidity and generating sufficient level of free cash flow from our business activities. Now let me talk about our business development strategy towards a net zero carbon society. On January 27, 2021, we announced our business development strategy towards a net zero carbon society. Our basic policy on management is to proactively engage in energy structure reforms towards the realization of a net zero carbon society by 2050, while responding to the growing energy demands of Japan and the world and fulfilling its responsibility for the development and stable supply of energy over the long term. The first is the stable supply of energy. INPEX will continue to position its upstream business as a core business, and will work to fulfill it's 2 social responsibilities of providing a stable supply of energy and responding to climate change by strengthening its upstream business and making it cleaner. Our company will accelerate its shift to natural gas and continue enhancing initiatives to expand its global gas value chain in Japan and the growing markets in Asia, while promoting carbon-neutral LNG. Secondly, we will set goals and promote the initiatives towards a net zero carbon society. INPEX will set its climate change response goals, including a net zero carbon emission by our company by 2050, in order to contribute to the realization of the Paris Agreement objectives in relation to climate change. In this process, we will reduce 30% or more net carbon intensity by 2030 compared to 2019. The subject of the reduction is scope 1 and 2, which are the carbon emission from our business processes. Scope 3, which is the carbon emission from burning oil and natural gas, which we sell, is the challenge we will tackle as a whole value chain. The company will actively promote 5 business pillars in order to achieve the goals. Firstly, based on the technological advantage we accumulated through projects, including the CCUS, which was the first demonstration test ever made in Japan, we will apply them to other domestic and overseas operations, including the Ichthys LNG Project in Australia by compressing CO2 from the upstream operation underground. Through such operation, we hope to achieve a safe and secure storage and utilization of CO2. On top of that, we will work thoroughly to increase efficiency of energy saving and energy use in all areas, including exploration, development and operation, while promoting the shift to natural gas and marketing carbon neutral LNG, among others. In particular, we will promote CCUS for the reduction of CO2 in the upstream operation, such as the CO2 EOR demonstration tests in Niigata and other areas of Japan, as well as the discussion of CCS for the Ichthys LNG Project in overseas. Secondly, in light of the hydrogen society, which will come over the mid to long term, we will enter into hydrogen production and supply business. We will promote the integrated hydrogen business test project in Kashiwazaki, Niigata, Japan, the clean ammonia business in Abu Dhabi and others. Thirdly, we will accelerate our initiatives, both in Japan and overseas relating to geothermal power generation business, applying our oil and gas development technologies; and the offshore wind power generation business, leveraging experience in the construction and operation of offshore floating facilities gained at operational sites overseas. Through such activities, we will work to enhance and emphasize the renewable energy initiatives. Fourthly, INPEX will accelerate methanation business while promote carbon recycling, including artificial photosynthesis based on the synergies with our oil and gas operations. We aim to set up such a business at an early stage while swiftly pursue initiatives in new business fields that show signs of growth. Fifthly, INPEX will promote CO2 absorption through forest conservation in Indonesia and other regions. The image of the capital allocation to these 5 business pillars is the following: based on the track record, post-Ichthys startup, the estimated average capital expenditure per annum over the next 5 years or so is around JPY 250 billion to JPY 300 billion based on the oil price of $50 to $60 per barrel, out of which around JPY 20 billion to JPY 30 billion will be used over the midterm to explore the 5 business fields where our company's strength can be used. Through such initiatives, we aim to proactively respond to the change towards a net zero carbon society and become a pioneer in the area of energy transformation. As the resolution of the 15th Ordinary General meeting of Shareholders is required, we would like to shift the Japanese corporate name to INPEX, which is widely recognized, particularly outside of Japan and conduct our operation as a global brand, both in Japan and around the world. Effective as of April 1, 2021, we will change from Kokusai Sekkyu Kaihatsu Keisuki Kabushiki Kaisha to Kabuki Kaisha INPEX. Under a new corporate name, we will contribute to the stable supply of energy, environmental conservation, economic prosperity, and social development, among others, through the stable supply of diverse and cleaner energy to both Japan and the countries around the world. Moreover, we will work to improve the corporate value of the entire group to proactively react to the change towards net zero carbon society and aim to be an innovative pioneer in the area of energy transformation. In fact, the corporate name INPEX also can be interpreted as innovative pioneer of energy transformation. Let me move to the progress against the medium-term business plan and the outlook for this fiscal year. As we have explained in the past, the business activities, the fiscal year ended December 2020 was the third year in the medium-term business plan where we achieved an extremely steady ramp-up of the Ichthys LNG Project, took on initiatives around the geothermal and offshore wind power generations to enhance renewable energy, among others, allowing steady achievements of the important milestones in the medium-term business plan. In this fiscal year ending December 2021, we will maintain our initiatives to achieve the important milestones, such as continuing the stable operation of Ichthys LNG Project post ramp up, completing the demonstration test of methanation in the field of renewable energy and others. We have previously announced in the medium-term business plan, our net sales target of JPY 1.3 trillion or so in the fiscal year ending December 2022, while the net sales were JPY 771 billion in the previous fiscal year, December 2020, and the forecast is JPY 883 billion in this fiscal year December 2021. The net income attributable to owners of parent in the fiscal year ended in December 2020 was negative JPY 111.6 billion, mainly due to the impact from impairment losses coming from the low oil price. The forecast for this fiscal year is JPY 100 billion. The net income goal for the year ending December 2022 is around JPY 150 billion, which is an attainable target based on the external factors such as oil price and exchange rate assumptions in the medium-term business plan. The net production target is 700,000 BOED for the fiscal year ending December 2022, while the actual was 573,000 BOED in December 2020, and is forecasted at 559,000 BOED in December 2021 due to assumption of continued production cuts of OPEC countries, partial maintenance, et cetera. ROE in the fiscal year ended December 2020, was negative 3.9% due to the unprofitable year end result, and we hope to see an improvement in this fiscal year ending December 2021 by turning into black. The guidance investment for growth for the 5-year period is JPY 1.7 trillion, while the actual was JPY 488.4 billion in fiscal year ended March 2019, JPY 243.2 billion in the fiscal year ended December 2019 and JPY 180.8 billion in the fiscal year ended December 2020. The estimate in the fiscal year ending December 2021 is JPY 255 billion due to a more careful investment decision. And the estimate over the 4-year period is JPY 1,167,400,000,000. In addition, INPEX has been considering ways to optimize the company-wide portfolio by emphasizing not only the volume but also the quality and the strategic positioning. By promoting the disposition of assets, which relative importance have declined or projects which are considered favorable to monetize at an early stage, the company aims to secure sufficient liquidity and free cash flow. As I explained earlier, dividend is JPY 24 per share for the fiscal year 2020, and the forecast is JPY 27 per share for the fiscal year ending December 2021. Going forward, we will continue rewarding our shareholders to respond to the support we received in our daily operation. Thank you for your kind attention.

I am Daisuke Yamada, and I'm responsible for the Finance and Accounting Division. I would like to explain the financial results for the fiscal year ended December 2020. I'd like to, once again, begin by explaining the change to our accounting period. We changed the accounting period for INPEX and consolidated subsidiaries in December 2019, aligning the fiscal year-end at December of each year. Because of this change in the accounting period, there were only 9 months in the fiscal year ended December 2019. However, from the fiscal year ended December 2020, the fiscal years will cover the entire year from January to December. In order to enable you on your comparison regarding the fiscal year ended December 2020, we included in this presentation material reference figures from the same period last year, as you can see on the left side of the table, covering the period from January to December 2019. This slide outlines the highlights of financial results for the fiscal year. Because the average Brent oil prices fell to a $43.20 or by 32.7% compared to the same period last year, net sales dropped by JPY 400.1 billion or by 34.2% to JPY 771 billion. Operating income decreased by JPY 310.7 billion or by 55.6% to JPY 248.4 billion, and ordinary income fell by JPY 327.3 billion or by 56% to JPY 257.3 billion. Moreover, because we recognized an impairment loss of JPY 189.9 billion for the year, net loss attributable to owners of parent for the fiscal year came to JPY 111.6 billion as against JPY 167.3 billion of profit we recorded during the same period last year. Because of the drop in oil prices caused by COVID-19 pandemic, we were forced to record a better result this year, our first full year net loss since our merger in 2008. For your information, profit contribution from the Ichthys LNG Project was approximately JPY 40 billion. Next, I would like to explain net sales in terms of crude oil and natural gas. Sales volume of crude oil remained more or less flat, decreasing by 4.1% or by 5 million barrels to 117 million barrels. Average unit price of overseas production came to $40, falling by $25 or by 38.3%, which was greater than the drop of Brent oil price. As a result, net sales of crude oil decreased by JPY 366 billion or by 42% year-on-year to end the fiscal year at JPY 505.5 billion. The main reason for the lower net sales was simply because of the lower oil prices. Sales volume of natural gas increased by 11.3% or by 47.3 billion cubic feet to 467.4 billion cubic feet, benefiting from increased production at Ichthys. And the average unit price of overseas production fell by 16.6% or by $0.72 to $3.61. Average unit price of domestic sales dropped by 14.1% or by JPY 7.69 to JPY 46.93. All Of these changes were essentially caused by lower oil prices. As a consequence, net sales of natural gas remained more or less flat, dropping by JPY 29.7 billion or by 10.7% to JPY 247.8 billion. Higher sales volume enabled by Ichthys production increase was essentially canceled out by the fall in gas price, which was caused by lower oil prices. This is the statement of income. I will explain the movements in net income or loss attributable to owners of parent using the waterfall charts in the next few slides. Please refer to this slide later if needed. I'd like to explain the movements in consolidated net income compared to the same period last year in terms of income before one-off profits and losses, which excludes one-off factors and in terms of net income including one-off factors. Net loss of JPY 111.6 billion can be broken down into JPY 54.6 billion of income before one-off profits and losses and JPY 166.3 billion of one-off losses. I'd like to first compare the JPY 54.6 billion of income before one-off profits and losses to the JPY 149.5 billion of income before one-off profits and losses recorded last year. Decrease in net sales due to lower oil and gas prices came to around JPY 400 billion. More than 90%, some JPY 360 billion of this, was due to reduced unit price of sales, which caused significant impact to our profitability. As for cost of sales, sales royalty fell in line with net sales for crude oil in keeping with the region sales of Abu Dhabi crude oil. However, because depreciation expenses increased for upstream operation of Ichthys due to higher production regarding gas, the overall decrease in cost of sales only reached JPY 71.2 billion. Exploration expenses, excluding one-off factors, improved net income by JPY 16 billion as against JPY 23.6 billion recorded last fiscal year. We were able to do this we lowered acceleration expenses to slightly more than JPY 7 billion, about 1/3 of the level we spent last year as part of a company-wide effort to reduce exploration investment to counter lower oil prices. We also implemented thorough measures to reduce expenses. And as such, SG&A impacted net income positively by JPY 3.5 billion. For your information, we saved some JPY 900 million due to lower travel and entertainment expenses resulting from the COVID-19 pandemic. Income tax payable fell by JPY 217.3 billion due to lower net sales. When you net all of these factors, our net income before one-off profits and losses for the fiscal year ended December 2020 came to JPY 54.6 billion, dropping by JPY 94.8 billion on a year-on-year basis. Next, I would like to explain the impact of one-off profits and losses. Income before one-off profits and losses for the fiscal year ended December 2020 came to JPY 54.6 billion. During this period, the spread of COVID-19 pandemic caused energy demand to fall. And this, amongst other reasons, led to a significant drop in oil prices. Accordingly, we conducted impairment tests on the group's assets and consequently recognized an impairment charge of JPY 189.9 billion. Specifically, we booked impairment losses of JPY 129 billion for the Prelude FLNG project, JPY 33.2 billion for Eagle Ford, JPY 18.6 billion for Lucius oil field and JPY 8.9 billion for Bayu-Unden. After reflecting JPY 39.9 billion from tax effect on impairment losses, one-off gain of JPY 13.8 billion associated with Ichthys refinancing, loss on valuation of investment securities, expenses related to exiting from projects and others, one-off profits and losses for the fiscal year came to negative JPY 166.3 billion. After subtracting JPY 166.3 billion of one-off losses from JPY 54.6 billion of income before one-off profits and losses, net loss attributable to owners of parent for the fiscal year came to JPY 111.6 billion. Next, I'd like to explain our consolidated balance sheet. Total assets at the end of the fiscal year came to JPY 4.6345 trillion, decreasing by JPY 215.4 billion in comparison to the end of the previous fiscal year. This was mainly due to the impairment charge we recognized on fixed assets. Incidentally, total assets of Ichthys downstream JV, which is not included in our consolidated balance sheet, came to JPY 3.6014 trillion. As for liabilities, the total at the end of the fiscal year, including both current and long term, came to JPY 1.6331 trillion, which was an increase of JPY 80.3 billion in comparison to the end of the previous fiscal year. The increase was mainly due to additions in loans. Net assets came to JPY 3.0013 trillion, decreasing by JPY 295.8 billion in comparison to the end of the previous fiscal year. This was mainly due to a decrease in shareholders' equity caused by the loss we recorded and a reduction in accumulated other comprehensive income. Incidentally, INPEX's total net loans, including net loans of the Ichthys downstream JV came to approximately JPY 2.1 trillion at the end of the fiscal year. Next, I would like to explain our cash flow, including the Ichthys downstream JV. Cash flow from operations before exploration expenditure came to JPY 349.2 billion, despite being impacted by the significant oil price plunge experienced during the previous fiscal year thanks to the steady production achieved at Ichthys, amongst other reasons. Cash flow from investment was negative JPY 167.2 billion due to cost reductions and optimization implemented to accommodate weaker oil prices. As a consequence, we secured free cash flow of JPY 182 billion for the fiscal year ended December 2020. Cash flow from financing activities was negative JPY 195.4 billion due to reasons such as expenditures related to loan repayments. Next is the consolidated financial forecast for the fiscal year ending December 31, 2021. The assumption for the oil price and exchange rate is the following: The oil price is traded at around $60 per barrel today, and it is in a recovery trend. The average price in January was around $55 per barrel, and the oil price futures are showing a backwardation, i.e., higher current price, lower futures. Due to COVID-19 pandemic, we think that market will remain to be unstable based on various factors. For these reasons, we have a conservative oil price assumption of $53 per barrel. The exchange rate assumption is JPY 103 against the U.S. dollar. Compared to the actual of the previous fiscal year, the oil price is $9.79 or 22.7% higher, while the exchange rate is JPY 3.77, or 3.5% appreciated against the U.S. dollar on a yearly average basis. The full year forecast based on these assumptions are the following, as shown in the slide. Consolidated net sales are expected to increase from JPY 771 billion in the previous year to JPY 883 billion, up JPY 112 billion or 14.5%. Consolidated ordinary income is expected to increase from JPY 257.3 billion in the previous fiscal year to JPY 353 billion, up JPY 95.7 billion or 37.2%. Net income attributable to owners of parent is expected to increase mainly due to the absence of impairment losses, which was booked in the previous fiscal year and the upgrade in the oil price assumption by around $10 per barrel compared to the actual in the previous fiscal year, improving from a net loss of JPY 111.6 billion in the previous fiscal year to a net income of JPY 100 billion in this fiscal year, up JPY 211.6 billion. The profit contribution from the Ichthys LNG Project is expected to be around JPY 65 billion on the full year basis versus the actual JPY 40 billion in the previous fiscal year, up by JPY 25 billion or so. The year-end dividend in the fiscal year ended December 2020 is JPY 12 per share as previously by our CEO. Together with the JPY 12 per share at the end of the second quarter, the annual dividend is JPY 24 per share. The forecast dividend for the fiscal year ending December 2021 is JPY 27 per share, an increase of JPY 3 from the JPY 24 per share in the previous fiscal year. The differences between the actual of the previous fiscal year and the forecast of this fiscal year is shown in the waterfall chart based on the financial impact to the net income attributable to owners of parent. First of all, the income from one-off profit is the amount excluding the JPY 166.3 billion one-off losses of the previous fiscal year, including the impairment losses. Based on this calculation, I would like to explain the increase or decrease from the income before one-off profit of JPY 54.6 billion in the previous fiscal year to the forecasted net income of JPY 100 billion in this fiscal year. The oil price assumption was raised $10 from the actual average in the previous fiscal year, pushing up profit by JPY 42.6 billion. The exchange rate assumption was revised towards a stronger yen, pushing down profit by JPY 7.5 billion. Exploration expenses were mostly flat against the previous fiscal year, pushing down profit by JPY 0.2 billion. The individual projects have both positive and negative contributions, but more or less flat against the previous fiscal year, pushing down profit by JPY 0.5 billion or so. Other one-off profits are expected in this fiscal year, pushing up profit by JPY 11 billion. As a result, we expect the net income attributable to owners of parent to increase from net loss of JPY 111.6 billion in the previous fiscal year to net income of JPY 100 billion in this fiscal year, up JPY 211.6 billion. The increase in profit of JPY 42.6 billion due to oil price has a discrepancy with the calculated oil price impact, which is based on around $10 difference between the actual and forecasted Brent from the previous fiscal year to this fiscal year and the oil price sensitivity for this fiscal year. This is due to the consideration of lagging effects in some gas sales. Let me cover the sales and investment plans for this fiscal year, which is the base of the financial forecast that I've just explained. The sales volume of crude oil is expected to drop to 111 million barrels, down 5.55 million barrels or 4.7% compared to the previous fiscal year. While the sales volume of natural gas is expected to increase to 481.4 billion cubic feet, up 13.9 billion cubic feet or 3.0% year-on-year. The sales volume of crude oil is down due to the expected drop in sales from some projects. The sales volume of natural gas is up partially from the production's restart of Prelude FLNG project, ramp-up of the Coniston projects, et cetera. Regarding the investment plan, both the development and exploration expenditures are planned based on thorough discussions around the investment effectiveness. As a result, the development expenditure and others are expected to increase to JPY 231 billion, up 38.2% year-on-year, while the exploration expenditure is expected to increase to JPY 16 billion, up 49.5% year-on-year. The forecast amount of investment has increased versus the actual in the previous fiscal year. But as we showed on Page 12, the cash flow from operations, before exploration investment, is forecasted to be approximately JPY 440 billion, an increase of around JPY 90 billion versus the previous fiscal year. Even after we factor the increase to cash flow from investment, which is an amount of approximately JPY 255 billion, we believe that the same level of cash flow can be generated as the previous fiscal year, as free cash flow becomes around JPY 185 billion. The amount of development expenditure includes the following activities. Based on the business development strategy, which we announced recently: Number one, reducing CO2 emission from the upstream operations; number two, developing the hydrogen and ammonia business; number three, promoting forest conservation; number four, enhancing renewable energy; and number five, promoting carbon recycling. The exploration expenditure is expected to increase to JPY 16 billion, up JPY 5.3 billion or 49.5% year-on-year, mainly due to the increase in works in the Middle East region. Based on the financial conditions at the beginning of this fiscal year, we have shown the oil price and exchange rate sensitivity to our net income in the fiscal year ending December 2021. The impact from increase of $1 per barrel is estimated to be positive JPY 6.6 billion at the beginning of this fiscal year. Including the lagging effects of some gas sales that reflect oil price, the oil price sensitivity is expected to change quarterly, with a positive JPY 4.6 billion at the beginning of Q2, a positive JPY 2.4 billion at the beginning of Q3 and a positive JPY 1 billion at the beginning of Q4. The second footnote shows the quarterly breakdown of the oil price sensitivity for your reference. The exchange rate sensitivity based on a JPY 1 depreciation against U.S. dollar, is expected to be positive JPY 2 billion. The net income sensitivity related to the devaluation of assets and liabilities denominated in U.S. dollar incurred by exchange rate differences is mostly neutral. This concludes my presentation. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]