Japan Petroleum Exploration Co., Ltd. (1662) Q1 FY2027 Earnings Deep Dive Report

Japan Petroleum Exploration Co., Ltd. (JAPEX) reported a significant decline in revenue and profit for the first quarter (1Q) of the fiscal year ending March 2027, compared to the same period last year, primarily due to temporary cost increases and derivative valuation losses. However, driven by rising crude oil prices, increased sales volumes in overseas operations, and the booking of gains on asset sales, the company has upwardly revised its full-year earnings forecast . This report provides a detailed analysis of the current performance, reasons for the revision, segment-specific trends, strategic initiatives, and financial and shareholder return policies, based on the facts presented in the earnings materials.

---

1. Earnings Highlights and Overview

First, we summarize the key performance topics and progress to grasp the overall trends in the 1Q results and the full-year forecast.

The earnings highlight slide above is the most critical summary , covering 1Q results, the overview of the full-year forecast revision, shareholder return policies, and key business progress across various sectors on a single screen.

As indicated in the slide, although consolidated results for 1Q FY2027 showed a year-on-year decline in revenue and profit, the company announced an upward revision to its full-year earnings forecast on May 13, incorporating recent market trends and business progress. Regarding shareholder returns, JAPEX maintains its projected annual dividend of 45.00 yen (with a floor of 40.00 yen) , while demonstrating concrete project advancements in the E&P (Oil & Gas Exploration and Production) and Carbon Neutral (CN) sectors.

---

2. Factor Analysis of Q1 Results

Results for 1Q FY2027 (April–June 2026) were as follows: Net Sales of 65.11 billion yen (down 21% YoY) , Operating Profit of 6.20 billion yen (down 63% YoY) , Ordinary Profit of 5.77 billion yen (down 72% YoY) , and Net Profit attributable to owners of the parent of 3.24 billion yen (down 79% YoY) .

The primary factors behind the profit decline in 1Q are as follows:

1. Decrease in crude oil sales volume and cost increases : The divestment of the Seagull project in the UK North Sea led to a drop in sales volume, while increased exploration expenses in Japan (3.93 billion yen, up 3.68 billion yen YoY) weighed on operating profit.
2. Cost increases in the Infrastructure/Utility (I/U) business : Higher costs associated with alternative LNG procurement caused the I/U business operating profit to fall into a deficit of -0.40 billion yen (compared to +4.40 billion yen in the same period last year) .
3. Deterioration of non-operating income/expenses : The reversal of LNG derivative valuation gains recorded at the end of the previous fiscal year resulted in a derivative valuation loss (-3.00 billion yen) , compounded by a decrease in equity-method investment gains.

---

3. Analysis of Full-Year Earnings Forecast Revision (vs. May 13 Forecast)

Despite the 1Q profit decline, the company has upwardly revised all profit levels for the full-year forecast compared to the previous plan.

This slide outlines the changes to the FY2027 full-year earnings forecast (comparing the figures announced on May 13 with those on August 6).

Specifically, Net Sales were increased to 314.00 billion yen (+11.00 billion yen / +4%) , Operating Profit to 46.00 billion yen (+5.00 billion yen / +12%) , Ordinary Profit to 46.00 billion yen (+1.00 billion yen / +2%) , and Net Profit attributable to owners of the parent to 65.00 billion yen (+5.00 billion yen / +8%) .

The upward revision is supported by a review of the underlying crude oil market and exchange rate assumptions. The full-year WTI crude oil price assumption was revised to 74.10 USD/bbl (up from 73.00 USD/bbl) , the CIF (JCC) crude oil price assumption to 77.20 USD/bbl (up from 74.91 USD/bbl) , and the exchange rate assumption to 153.70 JPY/USD (a weaker yen trend from 152.90 JPY/USD) . Consequently, higher sales prices and increased overseas sales volumes are expected to contribute to an increase in operating profit.

---

4. Segment Trends and Growth Strategy

(1) E&P Business (Overseas & Domestic)

• Overseas E&P : Increased sales volumes from US tight oil/gas development (Verdad and the newly acquired Fundare assets) and Norwegian offshore blocks will drive full-year performance. Growth in North America and Northern Europe is expected to offset negative factors such as the divestment of the UK North Sea Seagull project and the suspension of shipments from the Garraf oil field in Iraq. The full-year operating profit for Overseas E&P is projected at 42.90 billion yen (+4.70 billion yen vs. previous forecast) .
• Domestic E&P : Due to rising sales prices, the full-year operating profit forecast was revised upward to 15.70 billion yen (+1.80 billion yen vs. previous forecast) . Exploration and development activities are also progressing, including the completion of drilling surveys off the coast of Hidaka, Hokkaido, in June.

(2) Infrastructure/Utility (I/U) Business

In the I/U business, which handles domestic natural gas sales, LNG, and power supply, the burden of increased alternative LNG procurement costs led to a downward revision of the full-year operating profit forecast to 0.10 billion yen (-1.10 billion yen vs. previous forecast) . However, the power sector remains robust, with increased sales volumes and higher prices contributing to net sales of 170.16 billion yen (+3.27 billion yen vs. previous forecast) .

(3) Progress in the Carbon Neutral (CN) Sector

As part of decarbonization efforts, the company established a new company for the CCS (CO2 Capture and Storage) business in the Tomakomai area of Hokkaido in July, steadily building a foundation to respond to medium- to long-term changes in the energy structure.

---

5. Special Factors, Net Profit Structure, and Financial Base

We explain the structure behind the significant increase in net profit for the current fiscal year compared to the previous fiscal year (FY2026).

The slide above is a waterfall chart showing the factors contributing to the change from the previous year's actual net profit (53.43 billion yen) to the current year's projected net profit (65.00 billion yen) .

The primary driver for the 11.57 billion yen (+22%) increase in net profit compared to the previous year is the recording of extraordinary income . This includes 31.00 billion yen in gains on the transfer of business and 7.50 billion yen in gains on the sale of investment securities resulting from the review of policy-held shares (total extraordinary income of 38.50 billion yen).

On an operating profit basis, the increase in the Overseas E&P business (+23.00 billion yen) also contributes, with total company operating profit projected at 46.00 billion yen (+7.08 billion yen / +18% YoY) .

Cash Flow and Financial Soundness

In the full-year cash flow plan, the company expects to generate 81.00 billion yen in cash flow from operating activities . Cash flow from investing activities is planned at -74.00 billion yen (including -43.00 billion yen for the acquisition of property, plant, and equipment, and -48.00 billion yen in proceeds from the sale of subsidiary shares due to changes in the scope of consolidation), while cash flow from financing activities is projected at 40.00 billion yen . As a result, the balance of cash and cash equivalents at the end of the period is planned to reach 97.00 billion yen , a significant increase from the previous year, and the company maintains a sound financial position with an interest-bearing debt/EBITDA ratio of 1.1x .

---

6. Shareholder Return Policy and Summary

JAPEX maintains a policy of providing returns based on performance, with a target consolidated dividend payout ratio of 30%. For the fiscal year ending March 2027, the company maintains its projected annual dividend of 45.00 yen per share (22.50 yen interim, 22.50 yen year-end) , with a minimum floor of 40.00 yen per share . The net profit used as the basis for dividend calculation, excluding special factors such as gains on business transfers, is estimated at 38.00 billion yen .

Overall Summary (10 Key Topics)

1. 1Q Results : Significant YoY profit decline due to temporary costs and derivative valuation losses.
2. Full-Year Upward Revision : Revised to 46 billion yen in operating profit and 65 billion yen in net profit due to adjustments in oil price/exchange rate assumptions and increased sales volume.
3. Overseas E&P Expansion : Promotion of acquisition and development of US tight oil/gas (Fundare assets).
4. Domestic E&P Trends : Completion of Hidaka offshore drilling survey and maintenance of domestic natural gas base.
5. I/U Business Challenges : Profit compressed by higher alternative LNG procurement costs, though power sales remain solid.
6. Contribution of Extraordinary Income : 31 billion yen in business transfer gains and 7.5 billion yen in securities sale gains expected for the full year.
7. Market Sensitivity : Operating profit sensitivity of ±0.57 billion yen per 1 USD change in crude oil, and ±0.49 billion yen per 1 JPY change in exchange rate.
8. Financial Stability : Planned year-end cash balance of 97 billion yen, supported by 81 billion yen in operating CF.
9. CN Business Progress : Continued investment in decarbonization, including the establishment of a new Tomakomai CCS company.
10. Shareholder Returns : Maintaining a stable return stance with an annual dividend of 45 yen (40 yen floor).