JAPEX to Increase Oil & Gas Investments, Scales Back Renewable Plans

Japan Petroleum Exploration Co. (JAPEX) will focus on investment in oil and gas exploration and production (E&P) through 2030 as fair returns from renewable energy sources is challenging due to rising costs, President Michiro Yamashita told Reuters in an interview.

The earlier plan of expanding renewables business aggressively has come to a halt. Earlier in 2022, JAPEX had decided to support the energy transition by targeting equal distribution of profits between E&P and other businesses by 2030.

"For now, the investment focus will remain on oil and gas exploration and production... as securing a fair return from renewable energy sources such as offshore wind is challenging due to rising costs," Yamashita said.

Yamashita said, as cited in the report, the current 70-80% contribution of E&P in total earnings will likely remain the same through 2030, due to the expansion in Norway and the US. If the returns are viable, Japex could invest in non-oil and gas segments selectively as well, he said.

Against its original plan to invest 230bn yen ($1.5bn) in E&P over nine years, the company now wants to make 1.5 times investment of that amount or more because present crude prices are a lot higher than the plan's assumed $50 a barrel.

Yashamita told Reuters that the biggest challenge now was acquiring a tight oil operator business in the US and building an investment structure for sustainable profits adding that the company is looking to secure a deal this year or the next.

Earlier this month, the company had said while production from the assets acquired in a project in the US in FY22 has started to decline, production from the assets acquired in FY23 and FY24 has increased. "We expect production and sales in the next fiscal year to be similar to this year," the company had said.

He said learning from the past losses on large investments and JAPEX's exit from a Canadian oil sands project, this time investment might be capped at $300mn per project.

The company aims to strike a balance between returns, financial soundness and investments.

In Norway, JAPEX is expecting to increase profits by further exploraton and expanding existing project.

The Trump administration's energy policy has enhanced predictability and stability, making it "favourable" for the company, Yamashita believes. With the US President's plans to expand liquefied natural gas (LNG) exports, the company wants to gradually acquire gas assets, he said.