Imperial Oil Limited — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited U.S. GAAP statements. Unless stated otherwise, amounts are Canadian dollars in millions. Imperial operates upstream, downstream and chemical businesses.
Financial performance and position
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Operating revenues | $7,494 | $6,852 |
| Total revenues and other income | $7,533 | $6,871 |
| Income before income taxes | $1,352 | $1,051 |
| Net income | $1,015 | $781 |
| Diluted earnings per share | $1.19 | $0.91 |
| Operating cash flow | $1,047 | $959 |
| Capital additions to property, plant and equipment | $1,145 | $822 |
| Cash and cash equivalents | $1,045 at March 31 | $1,202 at December 31, 2011 |
| Total debt, including current borrowings and long-term debt | $1,206 | $1,207 at December 31, 2011 |
Net income rose 30% year over year; net income as a share of operating revenues was approximately 13.5%, versus 11.4%. Operating cash flow less property, plant and equipment additions was negative $98 million. The current ratio was approximately 0.86, based on current assets of $5,253 and current liabilities of $6,088. Total liabilities were $12,391 and shareholders’ equity was $14,120.
Segment results
- Upstream: Net income of $542, up $14 year over year. Higher liquids realizations added about $115; higher royalties reduced earnings by about $55 and lower Syncrude volumes by about $30.
- Downstream: Net income of $455, up $179 and a company record for a quarter. Stronger industry refining margins contributed about $150.
- Chemical: Net income of $35, versus $38, with management citing continued strong margins.
- Corporate and other: Net loss of $17, compared with a net loss of $61, primarily reflecting lower share-based compensation charges.
Material changes and management commentary
Management attributed the year-over-year earnings increase mainly to stronger refining margins and higher liquids realizations, partly offset by higher royalty costs and reduced Syncrude production. WTI averaged about US$8.43 per barrel above the prior-year quarter, while Brent was about US$13.46 higher; the WTI-Brent differential widened to US$15.43 per barrel. Western Canadian crude discounts also increased during the quarter. Bitumen realizations averaged C$66.24 per barrel, up C$10.48.
Cold Lake bitumen production averaged 157 thousand barrels per day, unchanged. Imperial’s share of Syncrude production was 74 thousand barrels per day, down from 80 thousand, mainly due to unplanned maintenance. Conventional crude production was 21 thousand barrels per day versus 22 thousand. Natural gas production declined to 198 million cubic feet per day from 269 million, primarily due to divested properties and natural reservoir decline.
Operating cash flow increased by $88 million, largely reflecting higher earnings, partly offset by working-capital effects, including inventory built ahead of planned second-quarter refinery maintenance. Investing cash outflow was $1,064 million, versus $806 million; spending advanced Kearl initial development and expansion, the Cold Lake Nabiye expansion, Syncrude projects, Horn River work and tight-oil acreage acquisitions. Financing cash outflow was $140 million; dividends paid were $93 million. The quarterly dividend declared was C$0.12 per share, up from C$0.11. Share repurchases were limited to offsetting dilution from stock-option exercises, and management said it would assess the program in light of capital projects.
Outlook, risks and notable items
- No quantified earnings or production guidance is provided. The filing cautions that quarterly results are not necessarily indicative of full-year results.
- Imperial has entered additional long-term heavy-crude pipeline transportation agreements with total commitments of about $3 billion, expected to be fulfilled in the normal course of business.
- Management identifies market conditions, changes in law or government policy, operating conditions and costs, project schedules, operating performance, oil and gas demand, commercial negotiations, and technical and economic factors as risks that could cause actual results to differ materially.
- Q1 included a $29 million pretax gain on asset sales ($24 million after tax); the downstream discussion identifies about $15 million of earnings from asset sales. The filing does not clearly reconcile these amounts.
- Other long-term obligations totaled $3,954, including $2,729 for employee retirement benefits and $893 for asset-retirement and other environmental liabilities. These are obligations, not all immediately payable amounts.
- Disclosure controls were assessed as effective, and the filing reports no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether refining margins and the WTI-Brent differential persist, and how Western Canadian crude discounts affect realizations.
- Progress, spending and schedule for Kearl, Nabiye and other capital projects, alongside the $3 billion pipeline commitments.
- Syncrude maintenance recovery and the continued effects of divestitures and natural decline on production.
- Working-capital and planned refinery-maintenance effects on cash generation; Q1 capital additions exceeded operating cash flow.
- The nature and timing of retirement, environmental and asset-retirement obligations, and the reconciliation of asset-sale gains discussed in the filing.