Imperial Oil Limited — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. Unaudited consolidated financial statements are prepared under U.S. GAAP. Unless stated otherwise, amounts are in Canadian dollars and millions.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Operating revenues | $9,399 | $7,894 | $18,596 | $15,893 |
| Total revenues and other income | $10,049 | $7,958 | $19,275 | $15,972 |
| Income before taxes | $1,646 | $432 | $2,906 | $1,502 |
| Net income | $1,232 | $327 | $2,178 | $1,125 |
| Diluted earnings per share | $1.45 | $0.38 | $2.56 | $1.32 |
| Operating cash flow | $999 | $738 | $2,084 | $1,335 |
| Capital additions to property, plant and equipment | $1,295 | $1,616 | $2,501 | $2,961 |
Net income grew sharply year over year; the filing does not present a single consolidated operating-margin measure. Net income divided by operating revenues was approximately 13.1% in Q2 2014 versus 4.1% in Q2 2013, and 11.7% versus 7.1% for the first half, respectively.
Segments and material period changes
- Upstream: Q2 net income was $857, up $460 year over year; first-half net income was $1,309, up $612. Both periods included a $478 after-tax gain from selling conventional producing assets. Higher realizations and a weaker Canadian dollar helped, while higher royalties and lower production at Cold Lake and Syncrude offset some gains.
- Downstream: Q2 net income was $366 versus a $97 loss; first-half net income was $854 versus $381. Prior-year results included a $264 after-tax Dartmouth refinery-to-terminal charge. Improved refinery reliability and higher marketing margins and sales volumes also benefited 2014; lower industry refining margins partly offset first-half gains.
- Chemical: Q2 net income was $57 versus $42, and first-half net income was $100 versus $77. The company reported record quarterly and first-half earnings, citing higher polyethylene volumes and stronger margins.
- Q2 operating revenues rose about 19% and first-half revenues about 17%. Q2 net income included a $480 after-tax asset-sale gain; the first-half gain was $496 after tax. Proceeds from asset sales were $807 for the first half.
- Kearl initial-development production averaged 73,000 barrels per day gross in Q2 (Imperial share: 52,000), compared with 6,000 gross in Q2 2013. Production improved through the quarter after April maintenance and reliability work. Cold Lake and Syncrude output declined year over year, largely due to maintenance; some affected facilities returned to normal around the start of Q3.
Cash, debt and liquidity
- Cash was $171 at June 30, down from $272 at December 31, 2013. Current assets were $4,797 and current liabilities $7,086; the resulting current ratio was approximately 0.68.
- Notes and loans payable were $1,624 and long-term debt, including capital leases, was $4,445. Other long-term obligations were $2,917, including employee retirement benefits and asset-retirement and environmental liabilities.
- Second-quarter investing activities used $595, including $1,295 of property, plant and equipment additions, partly offset by asset-sale proceeds. First-half investing cash use was $1,738. Financing used $335 in Q2; the company repaid $223 of commercial paper and paid $110 in dividends.
- The company had an undrawn $500 short-term committed bank facility extended to March 2015. Its affiliated-company floating-rate loan facility capacity was increased to $6.25 billion; the filing does not state an unused amount for that facility.
- Dividends were $0.13 per share for Q2 and $0.26 per share for the first half. No shares were repurchased during Q2; a new normal-course bid authorized repurchases of up to 1 million shares through June 24, 2015.
Outlook, risks and other items
The filing provides no specific earnings or production guidance. Management notes that first-half results are not necessarily indicative of full-year results. Forward-looking results may differ due to market conditions, legal or government-policy changes, operating conditions and costs, project schedules and performance, demand, commercial negotiations, and technical or economic factors. Planned maintenance, unplanned outages, royalty and energy costs, and commodity prices affected reported operations. The company was evaluating a new revenue-recognition standard required to be adopted beginning January 1, 2017. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- How much of the earnings increase is repeatable after excluding the conventional-asset disposal gain and the prior-year Dartmouth charge.
- Whether Kearl production and reliability improve as planned, and whether Cold Lake and Syncrude recover from maintenance-related reductions.
- Capital-spending requirements and project progress, particularly at Kearl expansion and Cold Lake Nabiye, relative to operating cash generation.
- Debt and liquidity exposure, including related-party borrowing arrangements and the availability and terms of credit facilities.
- Whether refining margins, crude and bitumen realizations, royalties, and foreign-exchange effects remain supportive of earnings.