Overview#
Shares of Japan Petroleum Exploration Co (JAPEX) experienced a significant decline on Monday, dropping as much as 9.3% to 2,130 yen. This drop came after the company issued a warning that escalating tensions in the Middle East could negatively impact its earnings.
Rising Costs and Production Disruptions#
JAPEX indicated that it has had to purchase replacement liquefied natural gas (LNG) cargoes from the spot market. This change is a result of disruptions in shipments from the Persian Gulf, particularly due to a blockade of the Strait of Hormuz, a critical waterway for oil and gas transport. The company noted that these new procurement costs are expected to be significantly higher than what they were before the crisis.
Impact on Operations#
Despite securing alternative supplies and ensuring that domestic gas and electricity services will not be disrupted, JAPEX acknowledged that the increased costs could squeeze their profit margins. Additionally, the company reported a halt in production at the Garraf oil field in Iraq, following a force majeure declaration by the Iraqi government. This suspension has cut off a source of revenue with no immediate timeline for resuming operations.
Future Earnings Outlook#
While higher crude oil prices and a weaker yen could potentially support JAPEX's earnings, the company cautioned that these benefits might be overshadowed by the rising costs of LNG and the loss of production. JAPEX is currently evaluating the overall financial impact of these challenges and plans to update its earnings outlook for fiscal 2027 in May.