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ANNUAL REPORT 2011

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DISCOVERING OUR POTENTIAL
Operations

Energy Business Group - Group CEO Message

Jun Yanai - Executive Vice President, Group CEO, Energy Business Group

The Energy Business Group's business model extends throughout the energy value chain, from upstream to downstream sectors. It encompasses oil and gas exploration, development and production (E&P) business; investment in LNG (Liquefied Natural Gas) liquefaction projects; importation and offshore trading of crude oil, petroleum products, carbon materials and products, LNG, and LPG (Liquefied Petroleum Gas); and domestic trading and retail operations related to these commodities and products.

Midterm Corporate Strategy 2012 Targets and Progress

Under MC's Midterm Corporate Strategy 2012, we have several key strategies: maintain and expand existing projects, particularly natural gas projects, and bring online new projects or ones under development; develop and strengthen E&P business; create new business models for tapping into globalization and growth markets; and strengthen MC's strategies and functions in support of these activities. We conduct our businesses mindful of Organizational Structure / Creating Social and Environmental Value. As the energy arm of a major general trading company, we aim to be a unique and sustainable energy business group over the medium and long terms. While focusing on Japan, we intend to develop our businesses globally to capture demand in other Asian countries and emerging economies.

In the year ended March 2011, we posted net income of ¥94.0 billion, a year-on-year increase of ¥22.1 billion. One reason was oil and other commodity price rises caused by instability resulting from a crisis for the euro and anti-government movements demanding democracy in the Middle East and North Africa. The bottom-line result also reflected the absence of losses related to fuel derivative transactions for a Japan Airlines Corporation subsidiary recorded in the previous fiscal year. Key developments in the past year with major Midterm Corporate Strategy 2012 projects included a final investment decision (FID) on the Donggi-Senoro LNG Project in Indonesia, which is set to become a major part of the Group's LNG business. We later acquired further related upstream working interests in this project. In Canada, we entered a project to develop unconventional shale gas resources.

Business Environment and Outlook for Year Ending March 2012

Amid ongoing market concern about the fiscal positions of countries such as Greece, Portugal and Ireland, economic growth rates in developing countries are forecast to remain high in the year ending March 2012. Demand for energy is expected to grow. Oil prices are projected to remain firm, albeit fairly volatile due to the uncertainty that surrounds the situation in oil-producing nations in the Middle East and North Africa. Under these conditions, we are projecting net income of ¥90.0 billion for the year ending March 2012. In line with Midterm Corporate Strategy 2012, we plan to make steady progress in developing the Donggi-Senoro LNG and shale gas projects while also seeking opportunities to participate in new natural gas and oil projects. Our focus remains to build petroleum products and carbon materials and products businesses that generate income by supplying the growing demand within the developing world.

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