Imperial Oil Limited — FY 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009; filed February 26, 2010. The filing reports Canadian dollars unless otherwise indicated. Imperial is an integrated Canadian oil and gas company operating in Upstream, Downstream and Chemical segments. Exxon Mobil Corporation owned approximately 69.6% of its common shares.
Financial performance and condition
| Metric (C$ millions, except per-share data) | 2009 | 2008 | Change |
|---|---|---|---|
| Operating revenues | 21,292 | 31,240 | Down 31.8% |
| Net income | 1,579 | 3,878 | Down 59.3% |
| Diluted earnings per share | 1.84 | 4.36 | Down 57.8% |
| Cash from operating activities | 1,591 | 4,263 | Down 62.7% |
| Capital and exploration expenditures | 2,438 | 1,363 | Up 78.9% |
| Cash and cash equivalents at year-end | 513 | 1,974 | Down 74.0% |
| Total debt at year-end | 140 | 143 | Down 3 |
| Shareholders’ equity at year-end | 9,439 | 9,065 | Up 4.1% |
Net margin, calculated as net income divided by operating revenues, was approximately 7.4%, versus 12.4% in 2008. Debt was 2% of capital. Total assets were C$17.473 billion; other long-term obligations were C$2.839 billion, up from C$2.254 billion, primarily reflecting retirement-benefit and asset-retirement obligations. The current ratio was approximately 0.93, based on reported current assets of C$3.505 billion and current liabilities of C$3.768 billion.
Fourth quarter: Total revenues and other income were C$5.864 billion, versus C$5.942 billion in Q4 2008. Net income was C$534 million versus C$660 million, and diluted EPS was C$0.62 versus C$0.76. Quarterly figures are unaudited.
Segment net income: Upstream C$1.324 billion (2008: C$2.923 billion); Downstream C$278 million (C$796 million); Chemical C$46 million (C$100 million); Corporate and other loss C$69 million (versus income of C$59 million).
Operating performance and changes
- Lower oil and gas prices were the principal earnings headwind: Upstream earnings were reduced by approximately C$2.4 billion from lower commodity prices. Lower royalties (about C$600 million) and a weaker Canadian dollar (about C$325 million) partly offset the decline.
- Average daily net oil-equivalent production was 257,000 barrels, up slightly from 255,000 in 2008, while gross production fell to 293,000 from 308,000. Conventional liquids, Cold Lake bitumen and natural gas volumes declined; net Syncrude synthetic oil production increased due to lower royalties.
- Average realized prices declined: conventional crude oil C$60.32/barrel versus C$95.76; synthetic oil C$69.69 versus C$106.61; natural gas C$4.11/thousand cubic feet versus C$8.69. Total oil-equivalent production cost fell to C$23.66/barrel from C$25.25.
- Downstream earnings fell to C$278 million. Lower margins and sales volumes reduced earnings by approximately C$340 million combined; 2008 included a C$187 million after-tax gain from the Rainbow Pipe Line sale. Refinery utilization declined to 82% from 89%, and net petroleum product sales fell to 409,000 barrels/day from 438,000.
- Chemical earnings declined to C$46 million amid weak demand and lower margins. Petrochemical sales averaged 2.8 thousand tonnes/day, unchanged from 2008.
- Operating cash flow fell sharply, while investing cash outflow increased to C$2.216 billion, mainly reflecting C$2.285 billion of additions to property, plant and equipment. Financing outflow was C$836 million; share repurchases declined to C$492 million from C$2.210 billion in 2008. Dividends were C$0.40/share for the year.
Outlook, risks and unusual items
- Management expected 2010 capital and exploration spending of approximately C$3.2 billion, including about C$2.9 billion Upstream, C$290 million Downstream and C$20 million Chemical. Environmental capital and operating expenditures were expected to be about C$790 million in 2010.
- Kearl Phase 1 was approved in May 2009; start-up was expected in 2012 at an initial rate of approximately 110,000 barrels/day of bitumen before royalties, of which Imperial’s share was about 78,000 barrels/day. Imperial’s year-end Kearl-related firm capital commitments were approximately C$1.498 billion. Nearly half of proved reserves were undeveloped, largely associated with Kearl and Cold Lake.
- Management cited long-term energy-demand growth and Canada’s oil sands and unconventional gas resources as opportunities, while emphasizing disciplined investment and testing projects across a range of price assumptions. No earnings or production guidance was provided beyond the stated project plans and expenditure outlook.
- Key risks include volatile oil and gas prices, heavy-oil price differentials, exchange rates, refining and product margins, declining conventional production, reserve replacement, project execution and cost risks, environmental and climate regulation, and operational hazards. Imperial reported no use of derivatives to hedge commodity or currency exposure.
- Environmental rules in Canada were evolving; potential costs and effects of future greenhouse-gas and low-carbon-fuel requirements could not be estimated. Existing Alberta emissions requirements had not materially affected operations, according to the filing.
- Reported proved reserves totaled 2.513 billion barrels of oil equivalent. The 2009 total included Syncrude synthetic oil and Kearl bitumen for the first time under revised SEC reserve rules, so the large increase from prior-year reported reserves is not directly comparable as organic reserve growth. Reserve estimates were prepared internally; no independent evaluator or auditor was engaged.
- Unrecognized tax benefits were C$165 million; management did not expect a material effect from pending tax matters. The company stated pending lawsuits were not expected to materially adversely affect operations or financial condition. It had an undrawn ExxonMobil affiliate credit facility of up to C$5 billion at Canadian market-based rates.
- PwC gave unqualified opinions on the financial statements and internal control over financial reporting as of year-end. Management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether commodity prices, refining margins and the Canadian/U.S. dollar exchange rate support recovery in earnings and cash generation.
- Execution, spending, approvals and schedule for Kearl Phase 1 and other major projects, alongside the planned 2010 capital program and firm commitments.
- Production trends at Cold Lake, Syncrude and conventional oil and gas assets, and the assumptions behind proved and undeveloped reserves.
- Liquidity and funding needs as cash declined, capital spending rose, and pension and other long-term obligations increased; confirm availability and terms of the undrawn affiliate facility.
- Potential costs or demand effects from climate, emissions, oil-sands royalty and other regulatory changes, as well as the resolution of tax matters and litigation.