March 1 (Bloomberg) -- Inpex Holdings Inc., Japan's largest oil explorer, said it will spend more than 200 billion yen ($1.7 billion) annually to search and develop oil and gas fields over the next three to four years.

The annual investment will include developing Indonesian gas fields, Chairman Kunihiko Matsuo, 71, said in an interview at the company's Tokyo headquarters. Inpex Holdings was created by Inpex Corp.'s acquisition of Teikoku Oil Co. last year.

Inpex is developing gas deposits in the Mahakam Delta in Indonesia's East Kalimantan province alongside French partner Total SA, to supply the Bontang liquefied natural gas plant that exports the fuel to Japan. Inpex and Total are also involved in the Ichthys LNG project in Western Australia, which is scheduled to begin construction in 2009 and start operating in 2012.

``Investment is required for raising gas production from the Mahakam Delta to feed Bontang,'' Matsuo said yesterday. ``Spending will top 200 billion yen annually and is expected to rise further in future with the development of projects in Australia and elsewhere.''

Inpex may be able to finance the exploration and development costs without having to raise borrowings or sell new shares, said Lalita Gupta, an analyst at Morgan Stanley in Tokyo.

``Operating cash flow is forecast at about 250 billion yen in fiscal 2008 and 280 billion yen in fiscal 2009, so they will be able to finance internally,'' said Gupta, who has an ``equal weight/cautious'' rating on Inpex shares. ``They could also use project finance depending on the case.''

Total, Indonesia

Inpex and Total have equal shares in the so-called production sharing contract in East Kalimantan, entitling them to 30 percent of revenue left after recovering costs, while the government gets 70 percent.

The fields, including Tunu and Peciko, in the drilling area have about 13 trillion cubic feet of reserves left after pumping 10 trillion cubic feet since starting up in the 1980s.

The remaining gas will allow production to continue for another 25 years, provided there's an adequate return on the investment, Philippe Armand, president of Total's Indonesian unit, said on Dec. 19.

Inpex is spending more than $80 million this year drilling four appraisal wells in the Abadi field in southern Indonesia from April. Each well will cost between $20 million and $25 million, Shunichiro Sugaya, director and chief operating officer for Asia at Inpex said on Feb. 7. Costs are rising to hire rigs to drill wells, Matsuo said.

``Rigs are difficult to get hold of and their rates are going up by more and more,'' he said.

Own Reserves

Inpex is increasing drilling in Indonesia as a part of global drive to boost ownership of oil and gas reserves for Japan, Asia's second-largest oil consumer, in the face of expanding energy consumption from China and India. Abadi is expected to have reserves large enough for a LNG plant, which may supply customers in Japan as well as elsewhere in the region.

For Australia's Ichthys project, Inpex may offer part of its 76 percent stake in the venture to Japanese power and gas utilities that may buy the LNG, Matsuo said. Total bought a 24 percent stake in Ichthys last year.

To contact the reporter on this story: Hector Forster in Tokyo at hforster@bloomberg.net; Akira Matsui in Tokyo at akmatsui@bloomberg.net.

Last Updated: February 28, 2007 20:24 EST