Imperial Oil Limited — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2010. Unaudited U.S. GAAP statements; amounts are Canadian dollars unless otherwise noted.
Financial performance
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Revenue and other income | $5.851bn | $5.561bn | $18.156bn | $15.534bn |
| Income before income taxes | $568m | $759m | $1.901bn | $1.455bn |
| Net income | $418m | $547m | $1.411bn | $1.045bn |
| Diluted EPS | $0.49 | $0.64 | $1.65 | $1.22 |
| Operating cash flow | $965m | $698m | $2.203bn | $664m |
| Capital and exploration expenditures | $1.199bn | $575m | $2.980bn | $1.604bn |
Q3 revenue increased about 5% year over year, while net income fell about 24%; nine-month revenue and net income rose about 17% and 35%, respectively. Net margin was approximately 7.1% for Q3 (9.8% in 2009) and 7.8% for the nine months (6.7% in 2009). The nine-month operating cash flow increase reflected stronger earnings and working-capital effects, partly offset by higher pension contributions. Operating cash flow was below capital and exploration expenditures by about $777m for the nine months.
Q3 segment net income: Upstream $348m (down from $439m), Downstream $69m (up from $62m), and Chemical $23m (up from $19m). Nine-month net income was Upstream $1.238bn (up from $833m), Downstream $176m (down from $226m), and Chemical $44m (up from $30m).
Liquidity, debt and capital
- Cash was $51m at September 30, 2010, down from $513m at December 31, 2009. Current assets were $3.309bn and current liabilities $4.477bn.
- Notes and loans payable were $229m and long-term debt was $228m, compared with $109m and $31m at year-end 2009. The company borrowed $200m during Q3 under an affiliated ExxonMobil variable-rate loan agreement; it also established a $200m committed bank facility maturing in July 2012.
- Total assets were $19.398bn versus $17.473bn at year-end; shareholders’ equity was $10.746bn versus $9.439bn. Other long-term obligations totaled $2.443bn, including $1.253bn of employee retirement benefits and $796m of asset retirement and environmental liabilities.
- Cash dividends paid were $263m for the nine months; dividends declared per share were $0.32 versus $0.30 in 2009. No material share repurchases were made in Q3 apart from purchases associated with employee option exercises.
Material changes and management commentary
- Q3 earnings were reduced by about $90m from planned Syncrude maintenance and about $70m from unfavorable foreign exchange as the Canadian dollar strengthened. Higher commodity prices and downstream margins together partly offset these impacts by about $75m. Management estimated third-party pipeline reliability issues reduced Q3 earnings by about $60m; the impact was expected to carry into Q4.
- Nine-month earnings benefited from higher upstream commodity prices (about $800m), higher Syncrude volumes (about $90m), and improved refinery operations and lower refinery maintenance (about $75m). Offsets included unfavorable foreign exchange (about $330m), higher royalties (about $240m), and lower downstream margins (about $110m). Asset-sale gains were also higher by about $25m.
- Management is reconfiguring the Kearl project using debottlenecking and expansion. The overall production profile and total resource developed were said to remain relatively unchanged, but first-phase capital spending was expected to be higher under the revised approach.
- Brent averaged $76.85 per barrel in Q3 and $77.15 for the nine months, up approximately 13% and 35%, respectively, from 2009. Cold Lake bitumen production averaged 139 thousand barrels per day in Q3 versus 145 thousand; Imperial’s share of Syncrude production averaged 66 thousand versus 78 thousand, reflecting planned maintenance. The company did not provide numerical earnings or production guidance.
Risks, contingencies and unusual items
Key exposures include commodity prices, foreign exchange, refinery and production operations, pipeline reliability, project schedules and costs, and changes in law or regulation. The filing highlights operational and potentially substantial financial risks from offshore exploration, limited insurance capacity for major events, and regulatory risk. Management said risk factors were not materially different from those in the 2009 Form 10-K. Adoption of updated variable-interest-entity guidance had no financial statement impact. Q3 included a $12m pretax gain on asset sales; nine-month pretax asset-sale gains were $58m.
Investor verification priorities
- Track whether pipeline reliability disruptions and Syncrude maintenance affect Q4 results as anticipated.
- Verify Kearl’s revised first-phase capital profile, schedule, and whether expected production and resource outcomes remain unchanged.
- Assess the sustainability of cash generation relative to elevated capital spending, the decline in cash, and increased borrowing.
- Monitor crude and bitumen price spreads, foreign-exchange effects, royalty costs, and downstream margins.
- Review retirement-benefit and environmental obligations, as well as the terms and related-party nature of the ExxonMobil loan.