Imperial Oil Limited — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Unaudited consolidated financial statements are prepared under U.S. GAAP; amounts are in Canadian dollars unless noted.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Operating revenues | $7.134B | $6.568B | $21.077B | $17.967B |
| Total revenues and other income | $7.158B | $7.442B | $21.347B | $18.912B |
| Income before income taxes | $496M | $1.182B | $791M | $781M |
| Net income | $371M | $1.003B | $627M | $721M |
| Diluted EPS | $0.44 | $1.18 | $0.74 | $0.85 |
| Operating cash flow | $837M | $772M | $1.683B | $1.264B |
Q3 2017 segment net income: Upstream $62M, Downstream $292M, Chemical $52M, and Corporate and Other loss of $35M. For the first nine months, segment results were Upstream loss of $225M, Downstream income of $750M, Chemical income of $161M, and Corporate and Other loss of $59M.
Q3 operating cash flow exceeded investing outflows of $234M and financing outflows of $393M. For nine months, investing used $454M and financing used $787M. Additions to property, plant and equipment were $683M for nine months, versus $893M in 2016. Cash increased to $833M from $391M at December 31, 2016.
Financial position and capital allocation
At September 30, 2017, total assets were $41.370B and shareholders’ equity was $25.021B. Current assets were $4.159B against current liabilities of $3.302B. Long-term debt, including capital leases, was $5.013B; current notes and loans payable were $202M. Other long-term obligations were $3.698B, including $1.410B of employee retirement benefits and $1.577B of asset retirement and environmental liabilities.
The company paid $390M in dividends in the first nine months; the reported per-share amount paid was $0.46, versus $0.43 in 2016. It repurchased about 10.0M shares for $377M year to date, including 6.7M shares for $250M in Q3. Shares outstanding were 837.6M at quarter-end, down from 847.6M at year-end 2016.
Changes versus the comparable periods
- Q3 net income fell from $1.003B to $371M, primarily because Q3 2016 included a $716M gain from retail-site sales. Q3 2017 also had about $100M of higher refining turnaround costs, partly offset by about $140M of higher refining margins.
- Nine-month net income declined to $627M from $721M despite higher operating revenue. The prior-year period included a large retail-site sale gain; 2017 included a $174M pre-tax gain ($151M after tax) on a surplus Ontario property.
- Upstream improved year over year: Q3 moved to profit from a loss, and the nine-month loss narrowed. Higher Canadian crude realizations and Kearl production helped; lower Syncrude and conventional volumes, higher royalties and, year to date, higher energy and Syncrude operating costs offset some gains.
- Downstream earnings were lower year over year, largely reflecting the absence of the retail-sale gain and, year to date, lower marketing margins associated with the retail divestment. Nine-month refinery throughput and product sales increased; Q3 throughput was lower amid Nanticoke turnaround activity.
- Cash from operations increased year to date, while lower asset-sale proceeds changed investing cash flow from a $350M source in 2016 to a $454M use in 2017. Financing outflows were lower, reflecting the absence of prior-year debt repayments.
Operations, outlook and risks
Q3 average gross production was 163,000 barrels per day at Cold Lake and 182,000 barrels per day at Kearl (129,000 barrels per day Imperial’s share). Imperial’s share of Syncrude production averaged 74,000 barrels per day. Syncrude volumes were affected by the March Mildred Lake upgrader fire; repairs were completed in late July. Q3 refinery throughput was 385,000 barrels per day, compared with 407,000 a year earlier.
The filing provides no specific earnings or production guidance. The company stated in its latest quarterly earnings release that Q4 2017 share purchases were anticipated to be approximately $250M; the program may be modified. Management said revenue-standard adoption in 2018 is not expected to materially affect the financial statements; the lease standard is planned for adoption in 2019 and remains under evaluation. The filing identifies market conditions, changes in law or policy, operating conditions and costs, project schedules, operating performance, oil and gas demand, and commercial or technical factors as risks that could cause actual results to differ materially.
Exxon Mobil Corporation held approximately 69.6% of Imperial and intended to participate in share repurchases to maintain that ownership percentage. The filing reports no material change in market-risk disclosures from the 2016 Form 10-K. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How much of the year-over-year earnings comparison reflects the prior-period retail divestiture gain versus ongoing segment performance.
- Whether Syncrude operations and production recovered after the upgrader fire, and the effects of planned maintenance and other volume changes.
- The expected scale and funding of future share repurchases and dividends, including Exxon Mobil’s participation and related-party exposure.
- Current estimates and potential changes in retirement, asset-retirement and environmental obligations.
- Capital spending plans and the company’s exposure to crude-price differentials, refining margins, costs and operating conditions.