Imperial Oil Limited — Q1 2011 Form 10-Q
Business context and period: Unaudited U.S. GAAP results for the three months ended March 31, 2011, compared with Q1 2010. Amounts are in Canadian dollars unless stated otherwise. Imperial reports Upstream, Downstream, and Chemical segments.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Operating revenue | $6,852 million | $6,134 million | Up 12% |
| Income before tax | $1,051 million | $651 million | Up 61% |
| Net income | $781 million | $476 million | Up 64% |
| Diluted EPS | $0.91 | $0.56 | Up $0.35 |
| Operating cash flow | $959 million | $914 million | Up $45 million |
| Capital additions to PP&E and intangibles | $822 million | $813 million | Up $9 million |
Operating margin, measured as income before tax divided by total revenue and other income, was approximately 15.3%, versus 10.6% in Q1 2010. Dividends were $0.11 per share, compared with $0.10.
Segments: Upstream net income was $528 million (up $84 million); Downstream was $276 million (up $237 million); Chemical was $38 million (up $39 million). Corporate and other was a loss of $61 million, versus a loss of $6 million, primarily reflecting share-based compensation charges.
Financial position and liquidity
- At March 31, 2011, cash was $301 million, up from $267 million at year-end 2010. Current assets were $4,356 million and current liabilities $5,326 million.
- Total debt was $755 million, comprising $229 million of notes and loans payable and $526 million of long-term debt, including $500 million owed to related parties. Long-term debt was nearly unchanged from year-end.
- Total liabilities were $10,244 million and shareholders’ equity was $11,764 million. Other long-term obligations were $2,880 million, including $1,749 million for employee retirement benefits and $732 million for asset retirement and other environmental liabilities.
- Investing activities used $806 million and financing activities used $119 million. Cash increased by $34 million during the quarter. The filing reports $859 million of total segment CAPEX, a broader measure that includes exploration and other additions.
Changes, outlook, and risks
- Management attributed higher earnings mainly to stronger industry refining margins (about $175 million), higher Syncrude and Cold Lake volumes (about $100 million), and reduced planned refinery maintenance (about $85 million). These benefits were partly offset by approximately $70 million of unfavorable foreign-exchange effects from the stronger Canadian dollar.
- Brent averaged US$105.01 per barrel, nearly 40% above Q1 2010. Cold Lake bitumen realizations were about 10% lower year over year, reflecting a wider light-heavy crude spread associated primarily with third-party pipeline integrity issues.
- Cold Lake gross bitumen production averaged 157,000 barrels per day, versus 148,000; Imperial’s share of Syncrude production averaged 80,000 barrels per day, versus 67,000. Conventional crude and natural gas production declined because of natural reservoir decline.
- The Kearl development plan was changed from three phases to two. The initial phase is planned for 110,000 barrels per day; a second-phase expansion and debottlenecking are intended to reach the previously approved 345,000-barrel-per-day regulatory capacity. Management said full lease-unit development costs were expected to remain the same.
- Capital spending focused on Kearl, Syncrude, Cold Lake and Nabiye, Horn River exploration, and downstream refinery reliability, flexibility, efficiency, and environmental projects. The filing gives no quantified full-year earnings or production guidance and cautions that quarterly results are not necessarily indicative of the full year.
- Forward-looking results are exposed to market conditions, laws and government policy, operating costs and performance, project schedules, oil and gas demand, commercial negotiations, and technical or economic factors. Management said market-risk disclosures had not materially changed from the 2010 annual report.
Investor verification priorities
- Track refining margins, crude differentials, pipeline constraints, and the durability of the quarter’s margin and volume gains.
- Verify Kearl’s revised phase schedule, expected spending, and progress toward the stated capacity; monitor Cold Lake and Syncrude reliability and production.
- Review working-capital movements, ongoing capital requirements, and the funding implications of retirement and environmental obligations.
- Reconcile share repurchases: management described purchases as limited to offsetting stock-option dilution, while the filing’s issuer-purchase table reports purchases under the announced program in February and March.
- Assess related-party exposure, including $500 million of long-term debt and related-party balances in receivables/payables and purchases.