Imperial Oil Limited — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited U.S. GAAP statements. Amounts are Canadian dollars unless noted.
Business context and results
Imperial operates in Upstream, Downstream and Chemicals. Crude prices fell year over year as global inventories increased; refining margins remained high amid low petroleum-product inventories. The WTI/WCS spread widened in January and February, then began recovering in March.
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $12.057 billion | $12.657 billion |
| Net income | $1.248 billion | $1.173 billion |
| Diluted EPS | $2.13 | $1.75 |
| Operating cash flow | $(821) million | $1.914 billion |
| Capital and exploration expenditures | $429 million | $296 million |
Revenue declined about 5%, while net income rose about 6%. Net margin, calculated as net income divided by revenue, was approximately 10.3%, versus 9.3%. The filing does not present a consolidated operating-margin figure.
Segment performance and operating measures
- Upstream: Net income was $330 million, down from $782 million. Lower bitumen and synthetic crude realizations and a wider WTI/WCS spread weighed on results; higher volumes, lower royalties and about $150 million of favorable foreign-exchange impacts partly offset these factors. Higher operating expenses of about $80 million were also cited. Kearl production attributable to Imperial rose to 184,000 barrels per day from 132,000, primarily due to less extreme cold weather and reduced unplanned downtime.
- Downstream: Net income increased to $870 million from $389 million, reflecting improved margins, higher volumes (about $90 million benefit) and favorable foreign exchange (about $80 million). Refinery throughput rose to 417,000 barrels per day from 399,000; utilization was 96% versus 93%, mainly because of lower planned maintenance.
- Chemicals: Net income was $53 million, compared with $56 million.
Cash, debt and liquidity
Cash and equivalents were $2.243 billion at March 31, down from $3.749 billion at year-end. Operating cash use primarily reflected working-capital effects, including a $2.1 billion income-tax catch-up payment, and lower Upstream realizations, partly offset by stronger Downstream margins. Investing cash use was $414 million, mainly reflecting higher property, plant and equipment additions. Financing cash use was $271 million, including $266 million of dividends paid; no shares were repurchased in the quarter.
Current assets were $9.272 billion and current liabilities $6.557 billion, giving a calculated current ratio of about 1.41 (about 1.21 at December 31, 2022). Long-term debt, including finance leases, was $4.027 billion; notes and loans payable were another $122 million. Cash less these reported debt balances was approximately $1.906 billion. Long-term debt excluding leases included $3.447 billion owed to related parties. Total assets were $42.115 billion and shareholders’ equity was $23.435 billion.
Dividends declared were $0.44 per share, up from $0.34. Weighted-average shares were 584.2 million versus 670.5 million a year earlier; the filing reports no Q1 2023 share purchases.
Changes, outlook and risks
- Results shifted substantially by segment: Downstream earnings improved while Upstream earnings fell. The company attributed Upstream production gains to Kearl operating improvements and noted high refining margins.
- No numerical earnings or production guidance is provided in the filing. Management cautions that first-quarter results are not necessarily indicative of full-year results.
- In Q2 2023, Imperial entered a long-term purchase agreement with a third party for about $3 billion. The company said it does not affect the 2023 or 2024 obligations disclosed in its 2022 Form 10-K and does not believe it will materially affect operations, financial condition or financial statements.
- There were no identified items in either Q1 2023 or Q1 2022 under the company’s non-GAAP measure. The filing discusses commodity-price, differential and margin, foreign-exchange, operational, project, environmental, regulatory, cybersecurity and broader economic risks. Derivatives are used for commodity risk management and trading; the company does not apply hedge accounting.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing’s legal-proceedings section states a $1 million threshold for environmental proceedings but provides no specific proceeding details in the supplied text.
Important facts for investors to verify
- Whether the negative operating cash flow was largely a timing effect from the tax catch-up and working capital, and how cash conversion develops in subsequent quarters.
- Whether elevated Downstream margins persist and whether Upstream realizations, the WTI/WCS spread and Kearl reliability improve or deteriorate.
- The terms, timing and cash-flow implications of the approximately $3 billion long-term purchase agreement.
- Related-party exposure, including the $3.447 billion of long-term debt owed to related parties, and the company’s capital-return and debt plans.
- Exposure to commodity prices, environmental obligations and other risks identified in the filing and the company’s latest annual report.