Imperial Oil Limited — Q3 2011 Form 10-Q
Business context and reporting period. This unaudited U.S. GAAP filing covers the quarter and nine months ended September 30, 2011. Imperial Oil operates in upstream, downstream and chemical businesses. Amounts are in Canadian dollars unless stated otherwise; financial amounts below are in millions.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Operating revenues | 7,918 | 5,828 | 22,531 | 18,053 |
| Total revenues and other income | 7,945 | 5,851 | 22,590 | 18,156 |
| Income before income taxes | 1,132 | 568 | 3,142 | 1,901 |
| Net income | 859 | 418 | 2,366 | 1,411 |
| Diluted earnings per share | $1.01 | $0.49 | $2.77 | $1.65 |
| Cash from operating activities | 1,658 | 965 | 3,273 | 2,203 |
| Capital expenditures and intangibles additions | 1,087 | 1,147 | 2,812 | 2,811 |
Q3 net income rose about 106% year over year; nine-month net income rose about 68%. The filing does not provide a clear consolidated operating-margin measure. Management cited stronger industry refining margins as a principal earnings driver.
- Q3 segment net income: upstream $534 (2010: $348); downstream $272 ($69); chemicals $37 ($23); corporate and other $16 (loss of $22).
- Balance sheet at September 30: cash $920 versus $267 at December 31, 2010; current assets $4,883 and current liabilities $5,862. Notes and loans payable were $364 and long-term debt, including capital leases, was $844. Total liabilities were $11,031; shareholders’ equity was $13,163.
- Cash uses and distributions: nine-month investing cash outflow was $2,760; financing provided $140. Dividends paid were $280 for nine months, and declared dividends per share totaled $0.33 versus $0.32 in 2010.
Material changes and management commentary
Management attributed higher Q3 earnings chiefly to approximately $270 of stronger industry refining margins, $190 from higher crude oil prices, $90 from increased Cold Lake bitumen production and $45 from higher Syncrude volumes. Offsets included approximately $65 from the stronger Canadian dollar, $60 in higher royalties and $35 from lower conventional crude volumes related to third-party pipeline reliability. For the nine months, the principal favorable factors were approximately $650 from higher crude prices, $525 from stronger refining margins, $190 from Cold Lake production and $70 from Syncrude; offsets included stronger-currency effects, royalties and lower conventional production.
Q3 Cold Lake gross bitumen production averaged 162,000 barrels per day, up 17% year over year; Imperial’s share of Syncrude production averaged 75,000 barrels per day. Conventional crude production averaged 12,000 barrels per day, down from 22,000, mainly due to pipeline downtime at Norman Wells. Natural gas production also declined, primarily from natural reservoir decline. Refinery crude runs increased by 39,000 barrels per day following planned maintenance in the prior quarter.
Cash from operations increased, reflecting higher earnings and working-capital effects. Nine-month capital spending was essentially flat year over year. Q3 investment focused on Kearl development and expansion, the Cold Lake Nabiye expansion, Syncrude projects, exploration and refinery reliability, flexibility, efficiency and environmental work. Cash rose to $920 at quarter end.
Outlook, risks and unusual items
- The filing gives no quantified earnings, production or capital-spending guidance. It cautions that nine-month results are not necessarily indicative of full-year results.
- Forward-looking statements are subject to market conditions, changes in laws and government policy, operating conditions and costs, project schedules, operating performance, oil and gas demand, commercial negotiations, and technical and economic factors. Reported performance was also affected by crude-price differentials, currency, royalties, planned maintenance, natural decline and third-party pipeline reliability.
- The company said its market-risk disclosures had not materially changed from its prior annual and quarterly filings. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
- A subsidiary pleaded guilty to a Fisheries Act offence involving a substance harmful to fish and fish habitat, and to a related water-license offence. Penalties were $5,000 and $25,000 in fines, plus a $155,000 conservation payment.
- Asset-sale gains were $17 in Q3 and $23 for the nine months, before tax. The nine-month cash-flow comparison also includes working-capital movements and pension contributions.
Key facts for investors to verify
- Whether higher refining margins and crude prices persist, and how benchmark price differentials affect Imperial’s realized prices.
- Progress, schedules and spending for Kearl and other major projects, along with Cold Lake and Syncrude production performance.
- Resolution and duration of pipeline reliability issues and their effect on conventional crude production.
- Working-capital movements, cash generation and the company’s debt and liquidity position as investment spending continues.
- Potential effects of currency movements, royalties, maintenance costs, and retirement and environmental obligations.