Ending our Promotion of the Oil Sands Project in Canada, the Change in Subsidiary, the Recognition of Extraordinary Losses, and the Voluntary Return of Executive Compensation

Japan Petroleum Exploration Co., Ltd. (JAPEX) announced that its Board of Directors has resolved today to end our promotion of the oil sands project in Canada (hereinafter the "Project") by Japan Canada Oil Sands Limited (JACOS), and to transfer all shares of JACOS, holding its 100% shares through Canada Oil Sands Co., Ltd. (CANOS), a consolidated subsidiary, to HE Acquisition Corporation (HAC).

As a result of this matter, JAPEX expects a change in the subsidiary, recognition of extraordinary losses in the fiscal year ending March 31, 2022, and voluntary return of executive compensation.

1. Ending our promotion of the Oil Sands Project in Canada

The Project promotes the development and production of oil sands in the Hangingstone leases in Alberta, Canada. JAPEX, through JACOS, has contributed to establish and spread the technology of oil sands development and production in Canada since the 1970s. At present, JACOS has been producing bitumen, an extra-heavy oil, of the range of 20,000 barrels per day in the current production area of the Hangingstone leases, which started production in 2017.

On the other hand, JAPEX formulated the medium-term business plan in 2018 with the recognition of the necessity to transform our business structure for the sustainable growth even in the market environment of 50-60 US dollars per barrel. Based on the recognition, our E&P projects have been striving to improve their profitability by optimizing the business portfolio, including the sale of the assets.

The environment surrounding the E&P business is expected to become even more severe due to the prolonging effects of the COVID-19 since early last year, including the structural changes by the new normal after the COVID-19 and acceleration of the global decarbonization. In light of this situation, we have decided to end our promotion of the Project and to transfer all shares of JACOS, after considering the medium- to long-term position of the Project as we continue to strengthen our resilience to low oil prices and a low-carbon environment.

We will promptly conclude the share transfer agreement between CANOS and HAC and proceed with the necessary procedures. For details on the share transfer, please refer to "2. Change in subsidiary."

2. Change in subsidiary

1) Reason for the change

To transfer all shares of JACOS held through CANOS (93.60% of voting rights held by JAPEX; 94.58% of voting rights held by the Company including indirect ownership) in accordance with the decision to end to promote the Project.

2) Outline of the subsidiary subject to change

3) Outline of the other party to the share transfer

4) Number of shares to be transferred and status of shares held before and after the transfer

5) Schedules

3. Extraordinary losses recognition related to the transaction

JAPEX expects to record approximately 90 billion yen of a loss on sale of subsidiary shares under extraordinary loss in the consolidated financial results for the second quarter of the fiscal year ending March 31, 2022, concerning the sale of JACOS shares held by CANOS.

The consolidated financial forecast for the fiscal year ending March 31, 2022, including this matter, is currently under review and will be disclosed at the time of the announcement of the first quarter financial results scheduled on August 10, 2021.

In the non-consolidated financial results for the same quarter, JAPEX expects to record approximately 80 billion yen of loss on valuation of subsidiary shares related to CANOS shares held by the Company, and approximately 10 billion yen of provision for loss on guarantees associated with the Company's guarantee obligations for a portion of JACOS's borrowings from financial institutions, under the extraordinary losses.

4. Voluntary Return of Executive Compensation

In consideration of the prospect of a significant downward revision to the consolidated business performance forecast for the fiscal year ending March 31, 2022, due to the recognition of the extraordinary losses, we have received a proposal for the voluntary return of executive compensation and has decided to accept it as described below.

1) Details of the voluntary return of executive compensation

• Representative Director and Chairman, Representative Director and President: 30% of Monthly Compensation
• Representative Director, Executive Vice President (1 person)Director, Senior Managing Executive Officer (1 person)Director, Managing Executive Officer (1 person)Managing Executive Officer (1 person)Executive Officer (1 person): 10% of Monthly Compensation

2) Period of voluntary return

3 months from August, 2021.

Related News

• Disclosure on July 27, 2018 "Transition to 20,000 barrels/d Stable Production Operations at the Hangingstone Oil Sands Project"