Inpex Corp
TSE:1605
Earnings Call Analysis
Q4-2023 Analysis
Inpex Corp
The company's aspirations to exceed a daily production of 700,000 barrels of oil equivalent faced headwinds, with actual figures landing at 643,000 barrels. This shortcoming was attributed to OPEC-related production decreases and asset management adjustments in the U.S. and Abu Dhabi. Despite these challenges, the management expressed the importance of intensified efforts to meet their established targets.
A look into the company’s capital allocation reveals a comprehensive approach over the previous 3 years, coupling financial plans with actual outcomes. Notably, the company managed to reduce debt by JPY 1.1 trillion, exceeding the initial goal by more than double. Shareholder returns were also substantial, with an actual amount of JPY 525 billion planned against an expectation of around JPY 200 billion. Investments aimed at growth saw a slight uptick to JPY 1.2 trillion from JPY 1.1 trillion. These moves signal a strategic emphasis on bolstering financial robustness, prioritizing debt reduction, enhancing shareholder value, and supporting cautiously measured growth investment.
The company's dividend per share (DPS) was set at JPY 74, followed by an increment to JPY 76 for the next fiscal year. This adjustment reflects a strategic decision to balance between DPS and a total payout ratio above 40%, with share buybacks considered as an intermediate option. This policy aligns with the company’s commitment to maintaining a steady return to its shareholders despite the fluctuations in the market.
Capital efficiency is gauged by the company keeping Return on Invested Capital (ROIC) above the Weighted Average Cost of Capital (WACC), with a current slight edge reported. Moreover, the company manifests its dedication to ESG principles by implementing measures aimed at accurate and transparent methane emission reduction, advocating for increased representation of women in the workforce, and conducting events tailored to uphold governance standards.
Amidst factors such as large impairments for specific projects, the company reported a strong net income of JPY 370 billion for the year ended December 31, 2023, marking its second-largest achievement to date. Although net sales for oil and gas experienced a decline, increased sales volumes offset potential impacts. Looking forward, the company is transitioning to International Financial Reporting Standards (IFRS) from Japanese Generally Accepted Accounting Principles (JGAAP) starting fiscal year 2024. With an oil price assumption set at JPY 73 and an FX rate of JPY 138 to $1, they project a net income of JPY 330 billion for the fiscal year.
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Hello, everyone. Thank you very much for participating today despite your busy schedule. My name is Ueda, and I would like to give a business overview.
And I'd like to explain using the presentation document. Let me start by talking about oil and gas, and I would like to talk about net zero. I will explain it by what we've done in 2023 and what we will do in 2024.
So first of all, let me look back over our business activities in FY 2023 for oil and gas business. As you can see, on the slide, our biggest asset is Ichthys. And we did have a little trouble. But in general, we operated quite stably and we shipped 129 LNG cargoes in full of the year. Last year, we have indicated that we're going to achieve 9.3 million tonnes of LNG per year. We tried to achieve that last year, but we weren't quite there. But in terms of facility capacity enhancement, we already have 9.3 million tonnes of LNG production per year, and we want to work towards achieving that in this new year. And the Ichthys-- the net income contribution in the year was about JPY 300 billion.
For Abu Dhabi, we have continued with the stable production operation, and we have worked on increasing our production capacity in Norway. We commenced them -- well, we started the electricity supply from a floating wind farm to generate our power supply. And this is Hywind Tampen. You can see in the photo from here [indiscernible] Norway, the oil platform we are able to accommodate about 30% of the electricity needed for the platform. Then we've started this initiative to supply electricity from [ Hywind ] wind farm.
Next, Abadi, there was a significant progress with Pertamina and Petronas, the new partners. They have participated into a project as new partners. And we've decided to add CCS and we've been consulting with the Indonesian government. And so we have submitted a revised plan of development at the revised POD and the Indonesian government approved its revised POD in December last year.
As for exploration and others, as you can see here, the Ichthys and Abu Dhabi Block 4, we had continued with the exploration well drilling.
And so what will happen in regards to these assets in 2024, moving to the next stage and starting with Ichthys. Well, the participating interest is likely to increase slightly, 66.245% to 67.8%. As some of you may be aware, Tokyo Gas, is going to sell the interest that they have in Ichthys, and we had preemptive rights. And so we decided to exercise this preemptive right. And of course, we have to fulfill the certain conditions under contract. And so it hasn't been closed as yet. But if these preemptive rights are exercised without any issue, then we expect participating interest to increase for Ichthys.
And for 2024, we have no planned shutdown. So are we expecting to ship around 11 LNG cargoes per month. And we aim to produce 9.3 million tonnes per year. And that is what we intend to achieve. And $73 is the crude oil price assumption, and so we expect net income contribution to be about JPY 220 billion. And we'll continue with our expand the progression at Ichthys. Abu Dhabi from 4 million to 5 million [indiscernible] is what the Abu Dhabi, the government is trying to achieve overall. So overall Zakum and Upper Zakum well, we are going to work on enhancing capacity, production capacity in these assets. The -- we're continuing with the development consideration in Norway as well.
As for Abadi, 2024 will be the final preparation year was reach FID. So that is how the year is positioned. FEED, the front-end engineering and design is to open the next stage. And probably the end of this year or the early next year is when we will probably start the field work. So what we are going to do, we are going to do surveys, both onshore and offshore. And so towards FEED, and FEED will be conducted through an open tender, and so we will be deciding conditions for a company to participate in FEED, so we will decide that. So these are the type of the major -- the activities that we will conduct regarding body this year.
And together with the FEED work, we will also engage in marketing and financing activities. As for Ichthys, we are considering -- we are still drilling acceleration wells in WA-343-P as well as we are continuing with studies and evaluation for the block that we've acquired last year, [indiscernible]. Abu Dhabi offshore -- Onshore block 4. A certain amount of the oil and natural gas has been discovered. And we are continuing to evaluate as to whether we are going to proceed to the development of production, which is the next phase.
Next, I'd like to talk about the net zero businesses. And for hydrogen and ammonium, the Kashiwazaki clean Hydrogen/Ammonia project in Niigata Prefecture. We have commenced construction of surface plant facilities for this project. And in Texas, just on that, and we have started the pre-FEED for a large-scale, low-carbon ammonia production and export projects, CCS/CCUS in Bonaparte offshore in the Northern Territory of Australia. There we are doing some -- the pre-appraisal, the l reservoir evaluation as well as some 3D seismic survey had to collect data. And the CCS JOGMEC conducted the -- we have decided to participate in the survey on implementation of advanced CCS project commissioned by JOGMEC. And officially selected to also participate in the Tohoku Region West Coast CCS Initiative and Tokyo Metropolitan area CCS project in addition to those.
And in Australia, we have acquired a 50% share in Enel Green Power Australia. So we're going to engage in a collaboration on a 50-50 basis. Also, we have acquired stake partially in the Moray East Offshore wind farm in UK. And so we have reached a 628 megawatts in net and renewable power generation capacity that is based on our stake.
Related to carbon recycling, we have commenced the construction of our methanation test facilities.
Now moving to the next slide. Then what are we going to do in 2024 then? In the hydrogen and ammonia, we will continue with the construction of the Kashiwazaki clean hydrogen/ammonia project. And there is a photo that I wanted to share with you, which indicates the present situation. So this is what the Kashiwazaki look like right now. What you can see in the middle is the well related to CCS injection. There will be 3 wells to be drilled, and you can see a rig. And we are currently doing the wells for that right now.
And so this is where the various facilities will be installed and the rig is located here. It's actually -- looking at the side from the opposite the direction, It's quite a large area. And this drill is to the compression facility, the CO2 collection facilities, ammonia production facilities, hydrogen production facilities, so we started with the construction of these facilities. The foundation has already been established mostly and we will start with building the own service facilities. And so we should be able to conclude the construction of the overall plant by August 2025.
Next, so also in the hydrogen and ammonia area, we'll continue with various activity to start the commercial. The production of low-carbon ammonia project in Houston, Texas. And for CCS/CCUS in the Bonaparte, we have drilled a new well. And we're going to evaluate how much CO2 we will be able to inject into this reservoir. Also CCS project in Japan, to there we have been selected to participate and we'll continue with study towards the potential commercialization of these projects.
There were activities related to renewable energy and I've already have prepared one photo. And the EGPA, this is a joint venture with the Enel Green Power Australia. So we have already started various activities. There are the windmill that has already been established in [indiscernible], we are installed in a new wind turbine as well. So that's what we are doing. And the [indiscernible] there is a new renewable facility in [ Bengal ] and [ Pune ]. So throughout Australia, we are working wind, the solar and also storage battery. And so we will be stepping up activities in these areas. You may not be familiar with these project overseas, but we are seeing definite progress in these areas.
So going back. So in 2024, we are going to engage in activities related to hydrogen/ammonia CCS and renewable's energy, as I have described. Now next page, so progress against medium-term business plan, and that's described on this slide. And for 2024, the oil assumption is $73 and FX, JPY 138 to $1. So these are the assumptions that we put for FY '24. Of course, there are various views, but we are somewhat conservative in these assumptions that we have come up with. And so net income for this fiscal year, we're expecting about JPY 330 billion based on IFRS. So that is what we are forecasting. And operating cash flow is going to be about JPY 700 billion, 7.7% ROE, Net debt/equity ratio of 30%.
So you can see the midterm targets are on the far right and how we are going. In terms of our net income level, of course, there is a difference between IFRS and JGAAP it's somewhat difficult. But if you kind of -- align the numbers to say, JGAAP, and based on sensitivity for oil price and the exchange rate. And when we do conversion, net income is slightly probably higher than the midterm goal. So in regards to the management goals, I think we are doing quite well. But for business targets, say, for example, net production we have indicated that we're going to aim for a level exceeding 700,000 barrels of oil equivalent day, but for the FY '24, expecting 643,000 barrels.
Now in Abu Dhabi, and also midterm, there is the production decrease due to OPEC and U.S. the portfolio asset management. This has had some impact. So we need to make a little bit more effort. Otherwise, we may not be able to reach the target that we see for ourselves as you can see on this slide.
For the net production, as mentioned, we have the great level as shown, 642. And this is the level that we have to work further going forward over the midterm. And because of the midterm plan this is based on the capital allocation. What we have done over the past 3 years is shown on the slide. On the left-hand side, this is the midterm business plan over the 3-year period and the cash allocation expected. And on the right-hand side, we have the 3-year. So we have the actual for 2023. And then for 2024 we have the plan. So the left-hand side is the capital allocation based on the midterm plan, and the right-hand side is the actual capital allocation. We have $60 for the oil assumption. With $70 per barrel, as shown in the red line, it will be about JPY 2.1 trillion. And on the right-hand side, the oil price and others are quite high and reflecting that. The operating cash flow before exploration is a 3-year plan of JPY 2.85 trillion. And we have about JPY 1.1 trillion of debt reduction and the cash flow as shown.
And regarding the use is shown on the right-hand side. If you compare the 2, I think it's very clear. JPY 1 trillion of operating cash flow increased, but we have shown how to use them. So the reduction in that, we initially had JPY 50 billion -- JPY 500 billion, but we actually did JPY 1.1 trillion, and that's the expectation. And for the shareholder returns, about JPY 200 billion was the expectation. We have JPY 525 billion as planned. And about double the size.
And regarding the growth investment, JPY 1.1 trillion to JPY 1.2 trillion, a slight increase JPY 1.2 trillion. So what we can say from here is when we set the midterm plan, we still had a lot of debt for [indiscernible]. And our priority was to reduce the debt as #1 priority., #2 is the increased shareholder return, #3 is a growth investment.
Mostly we are in line with this. So debt reduction and shareholder returns, we have actually doubled the amount, and that's how we are proceeding. Our financial softness have become really strong at the end of '24. At the end of March 2024, net interest-bearing debt will be around JPY 1.3 trillion, D/E ratio, 0.3% or so. As mentioned before, D/E ratio, 0.3 to 0.5, we'd like to control in that range. So it's mostly in line when it comes to having a soundness of the financial health. So that is the capital allocation together with the midterm business time. Next slide, please.
Regarding the shareholder return, as you can see, for '23, we have JPY 74 DPS and share buybacks of JPY 100 billion and total payout ratio of 52.5%. For this fiscal year, considering all the factors, the target this year is slightly lower than last year. It's not like we don't have any softness. So we'd like to increase the DPS as you can see, so JPY 2 of increase, a slight increase, but JPY 76 per share is set for this fiscal year. A total of above 40% total payout ratio.
So between the DPS dividend and the total payout ratio, would like to consider a share buyback in between. So that's the plan.
Next is capital efficiency. So having ROC stable ROIC above WACC. As you can see, the oil price and the exchange rate assumptions are shown for ROIC 6.8%, and WACC 6.6%, so a slight increase in ROIC. For ROE, about 8% so this is a slight lower number. But because of the adjustments, we are not expecting an increase to that for today.
Last page is ESG. We want to mention about the environment. So OGMP 2.0, but this is for the reduction of the methane emission. And we want to have a reduction in a very accurate and transparency manner. That is based on the United Nations Environment Programme. So that's the one thing. And then for the social side, we want to have female working employees and more involvement in the business. And therefore, the other governance area, we have conducted various events, including the Board meetings in Abu Dhabi. So we are slightly over the time, but that's all for me.
So allow me to explain about the consolidated financial results for the year ended December 31, 2023. And so in the third quarter, we have registered large impairment for Prelude but we achieved JPY 1.3 [ billion ] to JPY 370 billion of net income. And so this is probably the second largest number we have achieved JPY 99 to JPY 82 -- sorry, $99 to $82 for oil. But -- this was a pretty good on the oil price. It's not too high, but I think it was a good level of the Brent price and volatility was low. And the FX was JPY 141. So this was also a follow win for us. So we were fortunate in terms of external factors. And so JPY [ 1.8 ] trillion was added and the 0.3 wasn net D/E ratio. And so this is -- that was a lower part of the Brent. And ROIC has as the President said, ROIC is excess -- in excess is back, as we have promised.
And next is the net sales for oil and the gas for the Brent and the price came down. So the net sales have come down. In fact, JPY 170 billion of decline for gas, flat but the volume increased. A couple of years ago, we had the Ichthys maintenance shut last year, we didn't have that. So the sales volume increase as a consequence. And for the gas, the domestic and the international back and forth, there is a latent effect internationally, but because of that impact on domestic was still high. So as of course, net sales were more or less flat. And on this side, JPY 461 billion that was the result from 2 years ago, and this came to JPY 371.5 billion at the end of last fiscal year. So JPY 89.5 billion of profit decrease. And the reason can be broken down to business activity factors and one-off factors. And for business activity factors, essentially decrease in unit prices impact from the exchange rate, as I explained before, JPY 320 billion decrease for unit price, largely due to crude oil. FX, JPY 124.5 billion, a change in FX.
Next, the income tax decreasing crude oil, Abu Dhabi and Norway where we saw the profit came down. In other words, where the income tax rate was high is where profit they came down. so on a net basis, JPY 26.2 billion of business activity factor negatively. For the one-off factors, the large impact was prelude in the third quarter. We took about JPY 60 billion of impairment and minus JPY 27.7 billion year-on-year and the GHG regulation PRRT in Australia. Taxation issues and the prelude the production volume come down slightly, so we took impairment. Ichthys was under same environment. But production volume increase, and so we do not have to take impairment for Ichthys. So in total, JPY 27.7 million and divestment between the year before and last year and also the revaluation of financial assets. And so in total, JPY 63.2 billion of one-off factors ended up at JPY 371.5 billion. This was the second high earnings record. We consider this to be quite a good result.
Next, the forecast for the year ending December 31, 2024. As you know, from 2024 -- fiscal year 2024, we will be applying IFRS so the December 2023 was based on JGAAP, but December 2024 forecast, this is based on IFRS. And so the accounting standard has changed as the CEO has explained, the oil price assumption is JPY 73, JPY 138 to $1 for FX rate. And we won't have ordinary profit, and we're expecting trend of JPY 330 billion net-on-net profit. JPY 330 billion, Well, the 2 years ago, the highest and last year -- what was the second highest. So this will be the third number on net worth.
And first, this is based on JGAAP, we had JPY 321.5 billion, but we have not closed the year yet. So today, based on the assumptions, most probably will be JPY 330 billion, and that is the current expectation. And from that JPY 330 billion, if you subtract JPY 371 billion the difference, the increase in decrease should be 0. And for the external factors or the market factor business activities, factors and other search on for the market factors, oil price will be $73 or so. And if you look at the past 10 years, oil price is about $60 and above, so we believe that will be the range and for the ForEx, [ $138 ] is quite depreciation. Today, it's quite depreciating. So we think this might be conservative but in total, and this is the market factor. And for the business activities factor, we have the project related for domestic production is declining. That's one impact. And for the exploration expense, around and also as I explained, one on part to CCS, about JPY 19 billion of increase.
And then for the hydrogen/ammonia R&D, we have JPY 20 billion for these explorations for these expenditures. And then for the others, we have JPY 40 billion tax related expenses, and we will have tax effective accounting. So JPY 50 billion or so is a onetime amount. And this is between JPY 53 billion and the JPY 30 billion is because of the absence of the impairment from 2 years ago, and these are the impact for this fiscal year.
And between the sensitivity of oil price in the works, for the oil price, with the $1 fluctuation is about plus JPY 6 billion. And for the ForEx with the JPY 1 depreciation, about JPY 2.4 billion plus impact -- positive impact. When it became the plus there will be an impact as well.
And regarding the cash flow, for '24 December, please look at this number. First, operating cash flow before exploration is [ 7 ] and then for the investment. The investment cash flow, you have this total 1.262, but if you look at the investment, there is growth investment in others, for the growth investment, the investment in oil and gas or in Net Zero. And for the investment cash flow, we have the growth in others, investment, marketable securities purchase and others. So the investment cash flow may seem to be declining, but this is because of the U.S. bond. Selling of U.S. bond, we will be using that cash for the growth investment.
So JPY 300 billion to JPY 500 billion is actual investment. The leverage is going down quite well. These are quite aggressive plans we have today. If you look at the breakdown, investment development expenditure, we have oil and gas at JPY 994 billion and then development expenditure JPY 170 billion. Net Zero may seem low, but there is a budget or there's a magic. And because of the classification in the JPY 71 billion, Bonaparte is included in that several tens of billions of yen and also the blue, hydrogen and other commissioning. These are with tender P&L. So the methanation, blue hydrogen, those Net Zero investments are included. And the Bonaparte CCS Net Zero is also included. So if that is about JPY 10 billion, it's about JPY 50 billion total.
So as shown midterm plan, fossil fuel and the net zero having us striking a bit balance. That is how we are going to spend in '24. Free cash flow will have JPY 400 billion. And the final amount will be JPY 200 billion of cash and cash equivalents at the end of the year.
So that's ROIC by segments. This is the 2023 -- by December '23, which ended, and this slide is the actual forecast for 2024, as disclosed segment on the left-hand side, the oil and gas domestic [indiscernible]. And then we have this Ichthys, O&G overseas. And then the others are included in prelude and others. And then the others, we have the renewable energy and hydrogen and the global energy trading businesses.
And for the consolidated number, ROIC for '23 8.7% was the number as mentioned. But for this year, ROIC is 6.8%, even though it's 6.8%, market is 6.6%. So a slightly above WACC and that is the current budget for ROIC. And the amount after adjustment is shown, this is no PAT, so impairment excluded. So it's the denominator of ROIC. And as you can see, based on the budget this year, and this is the numerator of ROIC but actually, it's mostly for Ichthys, 6.78% is Ichthys, so it's mostly equivalent to Ichthys. So 8.5% for domestic. The Ichthys excluded other overseas is 10.7%, as it was the case last year, it is still unprofitable for the project, and this is still unprofitable, but we will be jumping up going forward. And then for hydrogen and CCUS, the amount is zero. But as mentioned, these are all R&D expenditure. So not concentrated under ROIC. So this is what we have disclosed as the level of ROIC today so that's all for me. Thank you very much.
We would now like to receive questions. We will first take questions from the venue. Then after that, we will take questions from Zoom participants. And we ask that you only ask 2 questions at a time. And so we'd like to invite questions from the floor to begin with. [Operator Instructions]. So the person in the front row, please ask your question.
Apart from the market condition, if you look at the short-term, midterm spend for you to increase profitability, in other words, your self effort. And in terms of guidance, so the basic -- the earnings and the factors are something that enables you to raise the base. What are some of the own initiative that you are to implement to achieve that based on your view, Mr. Ueda? Because I'm sure you're trying to achieve high production volume. So probably looking us to achieve stable production at a high level. But apart from that, reducing OpEx of Ichthys, lowering OpEx or Ichthys another project. In the case of Abu Dhabi, the current production volume, I think there are political matters behind it. So -- but increase of the Block 4 as well over the medium term, is there any potential projects that may give upside. So something that you can do on your own to increase the profitability? So that's the first question that I wanted to ask.
The second question is that I want to ask about shareholder returns. And at the end of this fiscal year, based on the financial position that you are at and the cash flow for this fiscal year, in view of those factors, what is your consideration in regards to your shareholder returns. That D/E ratio is probably at the lower end of the range. So on a cash flow basis, I think you will have great ability to provide returns to the shareholders now. I wanted to reconfirm that more than 40% of P&L. So in that regard, if you think about a strong financial position, can we consider that you have more leeway to be able to provide greater returns to the shareholders. And in doing so, what would be the basis for making new adjustment. And so the operating cash flow that you're generating in 2024, is that what you're going to use as a basis? Or are you going to look at the balance sheet as to where that improves to and any excess that you may have, you intend to provide that as a return to the shareholders. I wanted to get a feel of your thinking in this regard.
On Page 30 of the presentation material, the 2024 for the operating cash flow and the allocation, I think you gave a single year base. And -- the JPY 714 billion is what you have exceeded though for the operating cash flow. And on the right, you can see that the [indiscernible], and probably 40% is what you're using in terms of the average ratio, but plus alpha. And the operating cash flow on the left, if you think are you going to use that as, I think, so what you talked about the [indiscernible] on the sales. So are you going to use as a potential means to step up the returns if you could share with us your thoughts in real returns at this point in time?
Please allow me to respond to this question. In regards to your first question, for medium term -- sorry, so short term to the medium term, how are we going to increase our ability to generate greater profit. Yes, that is one of the key points for us. Over the long term, I'm not sure whether we call it long term, but once we start the production for Abadi, then that will change the earnings structure, but that is still long in the future. So over a short term to medium term, how are we going to increase our ability to generate greater profit and this is a very important issue for myself as well as for the company. But having said that, it's not the case that there is a magic that I can use. But of course, one thing that we can do is the Ichthys, in the Ichthys the profit contribution is something at the range of 70% or even 80% at times, but seeing the stable, the production is, we want to achieve 9.3 million tonnes. And that will be the basis for enhancing our profitability.
Maybe over medium term, Abu Dhabi, of course, is a factor, Abu Dhabi overall the $4 million the [ BOD ] is to be increased to 5 million [ BOD ] and so we are participating in this Abu Dhabi initiative through lower and upper Zakum. And so this type of production increase plans is likely to be implemented fully. So low-cost production is possible in Abu Dhabi and so that could potentially contribute towards increasing our profitability.
But there is also a different move, the joint production and the decline by OPEC. But even should that occur, we want to make sure that our financial position will be such that we will be able to generate greater profitability and workforce enhancing our ability to generate stable profit.
And furthermore, when we look at the others, can we just rely on organic growth, that's one discussion point for us to achieve growth. We probably should look at organic growth as well as M&A. We've been saying that I'm going to use both means. But having said that, when it comes to M&A, there needs to be opportunities. So sometimes you can execute that. But that will also be taken into consideration.
And in regards to these initiatives, we will engage in M&As if that will contribute growth, a new opportunity presents. In terms of returns, do we have some extra room, is it a cash flow basis? Is it a [ BS ] basis, we are -- also always asked that. And we have been saying that more than 40% of profit in terms of payout ratio over the medium term that we will have [indiscernible] so we have been adopting the cumulative the payout. The approach, and we have raised the dividend on that basis. But in regards to dividend next year onwards, that will be considered as part of the next medium-term management plan.
For this year, the basis that will be the P&L, which probably would be that -- the net income. And our commitment is more than 40%. That is what we have said for medium term plan and last fiscal year, we achieved 53% or more of the total return ratio.
On a cash flow basis, and for 2023, JPY 1 trillion this year at $73, the rent, plus JPY 700 billion of cash flow can be expected. If we use that as a basis then and the ability to make a shareholder return is going to be still reasonable. But of course, it will depend on the oil price going forward and what will happen to the FX going forward. But at maybe for the [ 3-year ] or towards the year as to what type of return can we achieve from P&L perspective but from the cash flow perspective, we'll take both of those factors into consideration to make it our decision.
I have 2 questions. Number one, for the previous year. December '23, the upshooting factors, can you please explain them? Oil price in the ForEx was slightly conservative. So we believe that's the main factor. But the expense from last year to this year or the overshooting of JPY 37 billion or so. Can you please explain the factors behind the driver? So that's number one.
And the second question for the new fiscal year, December '24, the one-off factor. Can you please explain them once again. So as explained on Page 20, you explained briefly. But out of this, plus JPY 10 billion and plus JPY 40 billion. These are the one-off factor for this year. And then on the next [ 13 and 4 ] vis-a-vis absence from last year. So this time, there's a one-off of about JPY 5 billion or JPY 50 billion. Is that going to be the case? So can you please explain about them?
Thank you for the question. for December '23, can we show this by chart, waterfall chart of the previous year. So you want to know the one-off factor of this fiscal year. The first question is for the previous fiscal year, December '23. So compared to the plan, you have some uptrend or upshooting situation. So can you please explain that? So JPY 270 billion against the actual of JPY 300 billion or more. So it's about JPY 100 billion more increase. So the reason behind that is, number one, the oil and the ForEx assumption was favorable more than expectation. So that's about JPY 80 billion or so, which increased push up the number. So that's about JPY 350 billion. And for the remaining JPY 200 billion in December '23, initial plan actually the clean decarbonization cost of Ichthys JPY 350 billion of negative impact was factored initially. And this is GHG emission regulations and ERT.
So as a result, we had some assumption of the impairment of the fixed cost -- fixed assets. But as explained, for this, we had an increase in production and cash flow. So we do not have that JPY 350 billion of expenditure. It was a positive JPY 350 billion, on the other hand, Prelude impairment was something we did not factor in, so that was a negative factor. Then with Ichthys, JPY 350 billion was a positive factor, and we have the decommissioning and others, minus JPY 60 billion. And those are all included as divestment. So some assets disposal in Europe and also the final assets decision for Indonesia. And then we also have the tax effect accounting or tax effect.
So initially was JPY 3 billion, as an assumption, but it was about JPY 2 billion of effect. And then another scheduling because of the tax effect, we had some increase in the profit. So the main factor is the external or the market factor and the rest is the divestment and these tax effects. And also the excess impairment did not occur. On the negative side, we had the Prelude impairment. So on the net we had about JPY 100 billion of increase on the net.
And then for December '24, can we share the waterfall chart? The one-off factor, as you mentioned, divestment-related JPY 10 billion. And by selling some of the interest, we had some gains. We cannot talk about the exact project name. And then JPY 40 billion is also a tax effect. Corporate structure changes as one and the losses around the exit of the projects -- exiting projects. So in total, we had some increase in factor as one-off. And divestment related we have a counterpart. And for the tax effect, we have our accounting downtowns. So we don't know whether it will be the same but that's how much we are expecting today. So about JPY 50 billion or so is included in the JPY 300 billion or so. So there is some buffer.
And then on the other hand, the oil and the ForEx, $73 is the assumption and JPY 138, $2. So there might be some buffer there as well. So if you look at our way of budgeting as well as the actual result, this is the relationship. So the one-off the external factor and the one-off factor being absent, so that's matching. And then on the other hand, we have the unexpected impairment might happen. So JPY 330 billion is also including some conservative views of ForEx, but not only that, if you include the one-off factor, it's quite a challenging number. So that is the current understanding.
The first question is related to Page 10. And this is the progress on cash allocation for the medium term 3 years. And if it is at $70, JPY 1.1 trillion operating cash flow before exploration on the right, JPY 2.5 trillion operating cash flow the difference between the 2. How we have to understand this and because of different oil price and FX and also the first year of IFRS, are these factors explain everything? Or is there other, the upside in practice, whether it be external and internal. So that's the first question that I wanted to ask.
Second is regarding the Abadi. The marketing situation, could you update us on the situation there? And the Japanese electricity and gas utilities, I don't think they want to enter into a long-term contract. I think that's been an issue for you. But has there been changed there. But in the case of Abadi, you probably are not just selling gas to Japanese customers, we'll probably look towards other Asian countries. So is it -- they are advancing better than you're expecting or not as well as you're expecting?
So allow me to respond to your first question. From '23 to '24 $70 on the right, the different oil price FX. And so reconciling JPY 2.8 trillion versus what -- but the accounting standard will change the IFRS, not only change will be P&L cash flow itself will not change. And so JPY 1.8 trillion to JPY 2.8 trillion. The difference between the 2 clearly is FX and oil price. It's just purely based on that.
And also -- and in terms of, of course, the production volume that will have the impact as well, different production volume, FX and accounting, the standard change is not included here. We haven't have given a breakdown of the FX, the oil price and the volume. But if required, we can provide that.
Now Abadi update was the second question. I don't know whether you know or not, but Abadi marketing, we have been doing this in the past. And so in Indonesia or in other Asian countries or Japan, we have already been speaking with potential buyers. And on a nonbinding basis, we have already entered into LOIs.
Now -- no it is ambiguous, but the kind of volume that they want to buy. And that volume is described on a nonbinding basis. And if we actually do some of this, it's more than the body production volume. So the challenge going forward is together with FEED and so forth, the nonbinding LOI together with Pertamina and Petronas, we need to convert that into binding the purchase agreement. So that's the activity that we need to engage going forward. And Japanese buyers, what are they thinking right now, the Japanese buyers, the gas buyers, they are quite cautious in entering into long-term contracts, and I expect them to maintain their position for Abadi as well.
But recently, the LNG is going to play a quite a significant role in the transitionary period. I think that's the thinking that is shared more widely. So maybe the buyers in Japan may take a bit different perspective going forward. I've been quite proactive. I've been engaging various discretions already. Now Indonesia, we are partnering with Pertamina, which is an Indonesian methane oil company, and Petronas, which is a Malaysian international oil company, Pertamina underneath the operation has a gas -- the sales company. They also have electricity the utility as well, so Abadi, the Petronas is also engaged in the gas sales quite significantly, so inclusive of Japan. The basic thinking is to produce in Asia and to consume in Asia. So it's local production for those consumption. That is the position of the Abadi project, given the global economy, given the geopolitical risk being high right now. And -- and this was channel issue, there are various issues to produce in Asia and to sell in Asia. There is a high interest that was this type of approach right now. So marketing itself is essentially activities for us going forward.
But to give you an update, I can say that the interest has increased quite significantly.
And nonbinding LOI, duration? Is it going to be like 15 years like with Ichthys, is that what is used?
Well, it does differ from the counterpart. But basically, it's based on long-term contract. And without a long-term contract finance will be difficult. So we are looking at contract in excess of 10 years.
Two questions, please. Number one, is regarding Ichthys expenditure. Do you have an increase? And along with this, ROIC is going to go down to 6.8% and 6.7%. And I'm sure you're not satisfied with this level. On the other hand, the ROIC recovery, we believe most probably that will come from reduction in expenditure, excluding the oil and the ForEx. But regarding the reduction of the expenditure, what is your view? Or if you're going to increase the expenditure around exploration this year, what is your view on reducing the cost?
And the second, the net production is [ 7 million ] barrels and 64.2% this year, so slightly undershooting. This 700,000 BOE/D, in the next emission plan, I think you're also targeting but M&A and those are difficult. So taking a bold step and organically increase is not going to achieve 700,000 BOE/D. So especially 700,000 BOE/D is how you're thinking at this moment.
So regarding Ichthys, I'd like to explain answer your question. Regarding Ichthys in '23, the actual in '23, we have a net profit of JPY 360.5 billion. and based on our IFRS, and JPY 270 billion for this year, so about a drop of JPY 80 billion or so. The reason is #1 oil in the ForEx. $80 to $73 and JPY 141 billion to JPY 138 billion to dollar. So there's about JPY 60 billion of decline with external factor. And for the sales volume, $9-some million is the expectation this year, but it's slightly declining. So not so much increase or decrease for the sales volume. Therefore, for '23 actual and the forecast '24, the large difference is the external factor.
And as a result, the profit after adjustments because of the drop in profit, there is some progress, but ROIC will be going down. Therefore, when it comes to how to increase ROIC with Ichthys, Going forward, excluding the ForEx and the oil price, how to reduce the cost is number one. And also regarding the sales volume, 9.3 million is the current maximum, so maybe having another tie-in or backfill. So those are the factors, but we cannot expect so much the rest is really up to cost reduction.
On the other hand, we have CCS Bonaparte included and also drilling another oil well, how to reduce the cost is really the question and also having a good balance overall on the OpEx. So that's the question. And talking about ROIC, as explained, 6.8% is great number. So mostly driven by Ichthys today. So how to improve Ichthys is really going to be the key to increase the ROIC of our company.
So within Ichthys, we like to improve looking at the content and also improve the profitability of Ichthys, and that's how I would like to increase and find ways to increase ROIC.
So for ROIC, we're still a work in progress today. So how to really make sure this plan is put into action and achieved. So how to lead this into different profit structure as a company is going to be the key going forward. Thank you.
And for the latter half way for question, I have to explain 700,000 barrels per day. So about -- there is about shortage of 60,000 BOE/D. There are 2 main factors. Number one is the portfolio improvement and also management efficiency. We have the strategy. So divestment in Africa. In others, there is some shortage of production volume and also because of the coordinated drop production cut in Abu Dhabi. So these are the uncontrollable area.
On the other hand, if we just achieve the production, would that allow achieving the number but compared to the past, we have this power volume strategy. So rather than 700,000, we want to increase the corporate value regardless of the production. And what is the portfolio for that, or what is the growth strategy investments? So those are the new vision updates we have to make. And also within the midterm plan, we are considering this. So we'd like to announce this at the beginning of next year and revise the vision or have a new midterm plan, and that's when we would like to explain in detail.
So regarding the volume, we are slightly going to be undershooting and that's the current expectation, but we'd like to increase the corporate value and that's the strategy we are working on today.
Thank you very much Well, we've arrived at the scheduled ending time. So with this, we want to conclude this session today. So with this, we'd like to conclude this financial results announcement for the year ended December 31, 2023. Thank you, everyone, for participating today in spite of your busy schedule. The session is ended. Thank you.