Imperial Oil Limited — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. Unaudited consolidated statements are prepared under U.S. GAAP; amounts are in Canadian dollars unless otherwise noted.
Financial performance
| Metric (C$ millions, except per-share data) | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Operating revenue | 9,641 | 8,577 | 28,237 | 24,470 |
| Total revenue and other income | 9,658 | 8,594 | 28,933 | 24,566 |
| Income before income taxes | 1,245 | 857 | 4,151 | 2,359 |
| Net income | 936 | 647 | 3,114 | 1,772 |
| Diluted earnings per share | $1.10 | $0.76 | $3.66 | $2.08 |
| Operating cash flow | 1,230 | 298 | 3,314 | 1,633 |
| Capital and exploration expenditures | 1,434 | 1,840 | 4,066 | 6,453 |
Q3 net income rose 45% year over year; nine-month net income rose 76%. Nine-month results included a $638 million pretax gain ($478 million after tax) from divestitures of conventional producing assets. The filing reports a $0.13 quarterly dividend per share, versus $0.12 a year earlier.
Segments and operating developments
- Upstream: Q3 net income was $532 million, down $72 million year over year. Lower bitumen and synthetic crude realizations reduced earnings by about $200 million; higher royalties and operating costs reduced them by about $90 million. Higher liquids volumes, including Kearl, and a weaker Canadian dollar partly offset the declines. Nine-month net income was $1.841 billion, up $540 million, including the divestiture gain.
- Downstream: Q3 net income was $343 million, up $297 million, reflecting improved refinery reliability and feedstock mix, stronger industry refining margins, and higher marketing margins and sales volumes. Nine-month net income was $1.197 billion, up $770 million; the comparison also benefited from a $264 million after-tax Dartmouth refinery conversion charge recorded in 2013.
- Chemical: Q3 net income reached a record $66 million, versus $39 million; management cited strong product margins and cost-advantaged ethane feedstock. Nine-month net income was $166 million, up $50 million.
Q3 Kearl gross production averaged 78,000 barrels per day (55,000 Imperial’s share); production excluding planned September maintenance averaged 92,000 barrels per day (65,000 Imperial’s share). Cold Lake bitumen production averaged 149,000 barrels per day. Divestitures reduced conventional oil and natural gas production compared with 2013.
Cash, debt, liquidity and balance sheet
At September 30, cash was $43 million, down from $272 million at December 31, 2013. Current assets were $4.465 billion and current liabilities $7.028 billion. Notes and loans payable were $1.759 billion; long-term debt, including capital leases, was $4.443 billion. Other long-term obligations totaled $2.817 billion, including retirement benefits and asset-retirement and environmental liabilities. Shareholders’ equity was $22.379 billion.
Nine-month investing cash outflow was $3.117 billion, including $3.852 billion of property, plant and equipment additions, partly offset by $814 million of asset-sale proceeds. Financing cash outflow was $426 million, including $331 million of dividends. Operating cash flow exceeded capital and exploration expenditures by approximately $752 million for the nine-month period.
Imperial extended its $500 million short-term bank facility to March 2015 and its $500 million standby long-term facility to August 2016; neither was drawn. It increased the capacity of its affiliated-company floating-rate loan facility from $5 billion to $6.25 billion. Long-term debt included $4.316 billion owed to related parties.
Outlook, risks and other matters
The filing provides no specific earnings, production or capital-spending guidance. Management cautions that results are not necessarily indicative of full-year performance. Forward-looking results may be affected by market conditions, oil and gas demand, legal or policy changes, operating costs and performance, project schedules, commercial negotiations, and technical or economic factors. The company said market-risk disclosures had not changed materially from its prior filings.
The company is evaluating the effect of a new revenue-recognition standard required to be adopted beginning January 1, 2017. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No shares were repurchased in Q3 under the company’s program, which authorized repurchases of up to 1 million shares through June 24, 2015.
Important facts for investors to verify
- How much of nine-month earnings growth is attributable to the one-time conventional-asset divestiture gain, and what the ongoing earnings base looks like without it.
- Whether Kearl production and planned project spending develop as expected, including the effects of maintenance and operating performance.
- Drivers of the substantial year-over-year improvement in downstream earnings and the sensitivity of results to refining margins, feedstock mix and reliability.
- Liquidity needs in light of cash of $43 million, current liabilities exceeding current assets, and reliance on affiliated-company financing.
- Potential future costs and timing associated with retirement benefits, asset retirement, environmental obligations and the Dartmouth terminal conversion.