Imperial Oil Limited — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated statements are prepared under U.S. GAAP. Unless noted otherwise, amounts are in Canadian dollars; financial statement amounts below are in millions.
Financial performance and condition
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $8,007 | $3,666 | $14,999 | $10,330 |
| Net income (loss) | $366 | $(526) | $758 | $(714) |
| Diluted earnings (loss) per share | $0.50 | $(0.72) | $1.04 | $(0.97) |
| Cash from (used in) operating activities | $852 | $(816) | $1,897 | $(393) |
| Investing cash outflow | $207 | $172 | $354 | $480 |
| Financing cash outflow | $1,336 | $167 | $1,538 | $612 |
Q2 net margin was approximately 4.6% (versus a loss in the prior-year quarter); first-half net margin was approximately 5.1%. The filing does not present a consolidated operating-margin measure.
- Segments, Q2 net income (loss): Upstream $247 million (prior-year loss $444 million); Downstream $60 million (prior-year loss $32 million); Chemicals $109 million (prior-year $7 million income). Corporate and other expense was $50 million.
- Cash, debt and liquidity at June 30: Cash was $776 million. Current assets were $5,874 million and current liabilities $4,650 million, or working capital of $1,224 million. Notes and loans payable were $197 million; long-term debt, including finance leases, was $5,065 million. Cash less these reported borrowings was approximately $4,486 million net debt. The company had $1.3 billion of available credit facilities, none drawn.
- Capital returns: Q2 share repurchases were $1,171 million for approximately 29.5 million shares. Dividends paid in the quarter were $161 million; the declared dividend was $0.27 per share. First-half dividends paid were $323 million.
- Investment: First-half capital and exploration expenditures were $422 million; additions to property, plant and equipment were $408 million. The measures differ because CAPEX includes additional categories.
Material changes versus the prior comparable period
- Revenue and earnings recovered sharply from Q2 2020, when pandemic-related demand weakness and low commodity prices affected results. Management attributed the improvement principally to higher Upstream realizations and production volumes, stronger Downstream margins and higher polyethylene margins.
- Q2 Upstream results benefited from approximately $1.1 billion higher realizations and $280 million higher volumes, partly offset by higher operating costs and royalties, foreign exchange effects, and the absence of a prior-year inventory-charge reversal.
- For the first half, Upstream moved from a $1,052 million loss to $326 million income. Downstream income declined to $352 million from $370 million, with unfavorable foreign exchange partly offset by higher margins and lower operating expenses. Chemicals income rose to $176 million from $28 million.
- Q2 operating cash flow improved by $1,668 million year over year, reflecting higher Upstream realizations and favorable working-capital impacts. Financing outflows increased substantially, primarily due to the share purchases.
- Cash was $776 million, compared with $771 million at December 31, 2020. Long-term debt including finance leases increased to $5,065 million from $4,957 million; shareholders’ equity declined to $20,769 million from $21,418 million.
Operations, outlook and risks
- Q2 WTI averaged US$66.17 per barrel versus US$27.83 a year earlier; WCS averaged US$54.64 versus US$16.73. Refinery throughput increased to 332,000 barrels per day from 278,000, with utilization of 78% versus 66%. Petroleum product sales rose to 429,000 barrels per day from 357,000.
- Management said demand for petroleum and petrochemical products continued to improve in 2021, supporting stronger prices and margins, while some effects of the weak 2020 environment persisted. The filing provides no specific earnings or production guidance.
- Risks highlighted include COVID-19 and its effect on demand and operations, commodity prices and margins, foreign exchange, regulation and policy, operational hazards, project execution, capital availability and general economic conditions. A US$1-per-barrel crude-price change or a one-cent change in the Canadian dollar versus the U.S. dollar was estimated to affect after-tax earnings by approximately $100 million, holding other factors constant.
- In Q1 2021, termination of transportation-services agreements related to a third-party pipeline project resulted in a recorded $62 million liability; associated long-term purchase commitments decreased by approximately $2.9 billion, mostly for 2026 and later years.
- Q2 2020 results included reversal of a $281 million non-cash inventory revaluation charge recorded in Q1 2020. The company also recorded a $20 million non-cash goodwill impairment in Q1 2020. These items affect year-over-year comparisons.
- The company renewed its share-purchase program for June 29, 2021 to June 28, 2022, authorizing purchases of up to 35,583,671 shares. Exxon Mobil indicated it intends to participate to maintain its approximately 69.6% ownership. The company stated that purchases may be modified or stopped.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing sets a $1 million threshold for disclosure of environmental proceedings but the provided text does not describe a specific proceeding.
Key facts investors should verify
- Whether the recovery in commodity prices, product demand and refining and chemical margins is sustained, and how much reported cash generation depends on working-capital movements.
- Current net debt and liquidity, including the composition and terms of debt, lease obligations and undrawn credit facilities.
- The pace and economics of share repurchases and dividends relative to capital spending and operating cash flow, including Exxon Mobil’s participation.
- The status, timing and financial consequences of the terminated pipeline agreements, the $62 million liability and the reduced long-term commitments.
- Exposure to oil-price and foreign-exchange movements, pandemic-related operating disruption, environmental obligations and other risks identified in the filing.