Imperial Oil Limited — FY 2011 Form 10-K
Reporting period: Year ended December 31, 2011; filed February 23, 2012. This is an annual report, not a standalone fourth-quarter filing. Amounts are in Canadian dollars unless stated otherwise. Imperial is an integrated Canadian oil and gas company operating Upstream, Downstream and Chemical businesses; Exxon Mobil Corporation owns approximately 69.6%.
Financial performance and key metrics
| Metric | 2011 | 2010 |
|---|---|---|
| Operating revenues | $30.474 billion | $24.946 billion |
| Net income | $3.371 billion | $2.210 billion |
| Diluted earnings per share | $3.95 | $2.59 |
| Cash from operating activities | $4.489 billion | $3.207 billion |
| Capital and exploration expenditures | $4.066 billion | $4.045 billion |
| Cash at year-end | $1.202 billion | $267 million |
| Total debt at year-end | $1.207 billion | $756 million |
| Other long-term obligations | $3.876 billion | $2.753 billion |
| Dividends per share | $0.44 | $0.43 |
Reported debt was 9% of capital, and the earnings-basis interest coverage ratio was 260x. Current assets were $5.083 billion against current liabilities of $5.949 billion (approximately 0.85x current ratio, calculated). Net margin was approximately 11.1%, versus 8.9% in 2010, calculated as net income divided by operating revenues.
Segment net income: Upstream $2.457 billion, Downstream $884 million, Chemical $122 million, and Corporate and other negative $92 million. Fourth-quarter net income was $1.005 billion, compared with $799 million in Q4 2010; quarterly revenues and other income were $8.124 billion versus $6.936 billion.
Material changes versus 2010
- Full-year revenue rose about 22% and net income about 53%; operating cash flow increased by $1.282 billion.
- Higher crude oil prices, stronger refining margins and increased Cold Lake bitumen output supported earnings. Offsets included higher royalties, a stronger Canadian dollar, and lower conventional crude oil volumes.
- Upstream net income increased $693 million; Downstream increased $442 million, primarily reflecting stronger refining margins; Chemical net income rose $53 million.
- Net oil-equivalent production was 242,000 barrels per day, down from 246,000. Gross production rose to 297,000 barrels per day from 294,000. Natural gas production declined to 254 million cubic feet per day from 280 million, mainly from reservoir decline and divestitures.
- Refinery throughput fell to 430,000 barrels per day from 444,000, and utilization declined to 85% from 88%, largely because of higher planned and unplanned maintenance.
- Asset-sale proceeds were $314 million, and pretax gains on asset sales were $197 million, compared with $144 million and $95 million, respectively, in 2010. The 2011 gains included sales of gas properties and an oil-sands lease exchange.
Outlook, projects and risks
- Management forecast approximately $5 billion of 2012 capital and exploration spending and described a decade-long growth strategy involving $35–$40 billion of investment, with a target of about 600,000 oil-equivalent barrels per day. Actual spending and production depend on project progress.
- Kearl initial development was 87% complete at year-end 2011, with start-up expected in late 2012. Its revised total appropriation was $10.9 billion, including Imperial’s $7.7 billion share. The approved expansion was appropriated at $8.9 billion, including Imperial’s $6.3 billion share, with additional production expected by late 2015.
- The board approved the $2 billion Nabiye expansion at Cold Lake in February 2012; start-up was expected by year-end 2014, with more than 40,000 barrels per day of additional gross production expected.
- Proved reserves totaled 3.191 billion oil-equivalent barrels; approximately 60% were undeveloped, mostly associated with Kearl and Cold Lake. The filing’s standardized discounted future cash-flow measure was $26.020 billion; the company cautions that this prescribed measure is not a reliable estimate of expected cash flows or reserve value.
- Environmental capital and operating expenditures were approximately $724 million in 2011; approximately $1.1 billion was expected in 2012. Environmental regulation, including evolving greenhouse-gas requirements, may raise costs, though several identified provincial impacts were not considered material at the time.
- Principal risks include volatile commodity prices and bitumen differentials, foreign-exchange exposure, pipeline reliability and transportation capacity, project execution and cost escalation, declining conventional production, reserve-estimation uncertainty, environmental and other regulation, operational incidents, and cyber-security breaches. Imperial said it did not use derivatives to hedge these exposures.
- Outstanding commitments included $1.743 billion of firm capital commitments, $2.693 billion of pension and other post-retirement obligations, and $936 million of asset-retirement obligations. Management did not expect pending lawsuits to have a material adverse effect.
Important facts for investors to verify
- Whether Kearl and Nabiye remain on schedule and within approved budgets, and whether expected production ramps are achieved.
- How commodity prices, bitumen discounts, the Canadian/U.S. dollar exchange rate, royalties and pipeline constraints affect earnings and cash flow.
- Whether rising debt and long-term obligations, including pension funding, remain manageable alongside the planned capital program and shareholder distributions.
- How much of reported earnings and cash generation reflects recurring operations versus asset-sale gains and other unusual items.
- Reserve estimates and the pace at which the substantial proved undeveloped reserve base is converted into producing assets.
- The extent and cost of future environmental, climate-policy, reclamation and other regulatory requirements.