Imperial Oil Limited — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited U.S. GAAP statements. Amounts are Canadian dollars unless stated otherwise. Comparisons are with Q1 2014.
Financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Operating revenue | $6,170 million | $9,197 million |
| Income before income taxes | $561 million | $1,260 million |
| Net income | $421 million | $946 million |
| Diluted earnings per share | $0.50 | $1.11 |
| Operating cash flow | $281 million | $1,085 million |
| Capital expenditures and exploration expenditures | $1,050 million | $1,234 million |
| Dividends per share | $0.13 | $0.13 |
Revenue and earnings fell substantially year over year, primarily reflecting lower crude oil and natural gas realizations. The filing does not provide a consolidated profit-margin figure. Federal excise tax of $377 million is included in both operating revenue and expenses.
Segments and material changes
- Upstream: Net loss of $189 million, versus income of $452 million. Lower crude oil and gas realizations reduced earnings by about $1.1 billion; partly offset by lower royalties ($200 million), a weaker Canadian dollar ($160 million), higher Kearl and Cold Lake volumes ($60 million), and lower energy costs ($60 million). WTI was down 51% year over year.
- Average Canadian-dollar realizations were $55.81 per barrel for synthetic crude and $27.40 per barrel for bitumen, down 48% and 58%, respectively. Natural gas realizations were $3.15 per thousand cubic feet, down $3.41 from Q1 2014.
- Cold Lake bitumen production averaged 152,000 barrels per day, up from 147,000; Kearl gross production was 95,000 barrels per day versus 70,000. Conventional oil and natural gas production declined, mainly due to properties divested in 2014. Syncrude production attributable to Imperial was unchanged at 73,000 barrels per day.
- Downstream: Net income increased to $565 million from $488 million, as higher marketing margins and a $17 million asset-sale gain more than offset lower refining margins.
- Chemical: Net income rose to $66 million from $43 million, mainly due to strong polyethylene margins. Corporate and Other loss narrowed to $21 million from $37 million.
Cash, debt and liquidity
Operating cash flow was $281 million, while investing activities used $1,002 million, including $1,011 million of property, plant and equipment additions. Financing provided $566 million, including $717 million of long-term borrowing; dividends paid were $110 million. Cash declined to $60 million from $215 million at year-end 2014.
At March 31, 2015, notes and loans payable were $1,938 million and long-term debt was $5,610 million, compared with $1,978 million and $4,913 million, respectively, at December 31, 2014. The company drew $717 million on an existing loan facility with an Exxon Mobil Corporation affiliate to fund normal operations and capital projects. Its $500 million 364-day committed bank facility was extended to March 2016 and remained undrawn. Total liabilities were $18,901 million and shareholders’ equity was $22,707 million.
Outlook, risks and notable items
- The filing gives no specific earnings or production guidance. Management says quarterly results are not necessarily indicative of full-year results. Capital spending was directed primarily to completion of the Cold Lake Nabiye and Kearl expansion projects; Nabiye began initial production in Q1.
- Management identifies market conditions, changes in law or government policy, operating costs and conditions, project schedules and performance, oil and gas demand, commercial negotiations, and technical and economic factors as risks to forward-looking statements.
- Reported annual after-tax earnings sensitivities were approximately $300 million for a $4-per-barrel U.S. crude-price change, $165 million for a $1-per-barrel change in total petroleum-product sales margins, and $560 million for a seven-cent change in the Canadian dollar versus the U.S. dollar. The filing notes sensitivities had increased from year-end 2014.
- Asset sales generated a $26 million pretax gain ($23 million after tax). Other long-term obligations included $1,936 million of employee retirement benefits and $1,330 million of asset-retirement and other environmental liabilities.
- The company was evaluating the new revenue-recognition standard, scheduled for adoption beginning January 1, 2017. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether oil, gas, and product-margin conditions—and the Canadian-dollar exchange rate—remain consistent with the reported sensitivity exposures.
- Progress, costs, reliability, and production ramp-up for Nabiye and the Kearl expansion.
- Cash generation and funding needs relative to capital spending, dividends, and the higher debt balance, including reliance on affiliated-company financing.
- Developments in retirement-benefit, asset-retirement, and environmental obligations.
- Whether the 2014 asset divestitures continue to affect conventional oil and natural gas production.