Imperial Oil Limited — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated statements prepared under U.S. GAAP; amounts are Canadian dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $13.873B | $15.071B | $37.694B | $45.013B |
| Net income | $1.601B | $2.031B | $3.524B | $5.613B |
| Diluted EPS | $2.76 | $3.24 | $6.04 | $8.58 |
| Operating cash flow | $2.359B | $3.089B | $2.423B | $7.685B |
- Revenue declined 8% in Q3 and 16% for the nine-month period year over year; net income fell about 21% and 37%, respectively. Net income as a share of revenue was approximately 11.5% for Q3 and 9.3% for the nine months, versus 13.5% and 12.5% in the comparable 2022 periods.
- Cash and cash equivalents were $2.716B at September 30, down from $3.749B at year-end 2022. Current assets were $10.760B and current liabilities $7.773B. Long-term debt, including finance leases, was $4.017B; notes and loans payable were $121M. Cash less these borrowings implies net debt of approximately $1.422B.
- Nine-month cash flow was affected by working capital and a $2.1B income-tax catch-up payment; income taxes paid were $3.627B versus $339M a year earlier. Capital additions to property, plant and equipment were $1.315B for the nine months.
- Q3 dividends paid were $292M and share repurchases were $1.342B. Nine-month dividends paid were $815M and repurchases were $1.342B. Dividends declared were $1.44 per share for the nine months; the MD&A reports $1.38 per share paid during that period.
Business performance and changes
- Upstream: Q3 net income was $1.028B, up from $986M. Higher volumes at Kearl and Syncrude and lower operating expenses supported results, partly offset by lower synthetic crude realizations. For the nine months, net income fell to $1.742B from $3.114B, reflecting lower realizations, lower Cold Lake volumes, and the absence of XTO Energy Canada production.
- Downstream: Q3 net income declined to $586M from $1.012B, primarily because of weaker margins and planned Sarnia turnaround activity. Nine-month net income was $1.706B versus $2.434B; weaker margins and turnaround impacts were partly offset by foreign exchange and volume benefits.
- Chemicals: Q3 net income was $23M, compared with $54M. Nine-month net income was $147M, compared with $163M.
- Q3 refinery throughput was 416,000 barrels per day and utilization was 96%, versus 426,000 and 100% in Q3 2022; planned Sarnia turnaround work contributed to the decline. Q3 production increased at Kearl and Syncrude and decreased at Cold Lake.
- Crude prices rose during Q3 as demand exceeded supply following OPEC+ production cuts, while the WTI/WCS spread recovered during the quarter. Management said 2023 refining margins remained strong but below 2022 levels on a year-to-date basis.
- Prior-year net income included a $208M after-tax gain related to the sale of XTO Energy Canada interests. The company reported no identified items in 2023; its non-GAAP nine-month net income excluding identified items was $3.524B, compared with $5.405B in 2022.
Outlook, risks and notable items
- The filing provides no specific earnings or production guidance. Management cautions that nine-month results are not necessarily indicative of full-year results.
- Key disclosed uncertainties include commodity prices, supply and demand, refining margins and differentials, foreign exchange, operational and project execution risks, regulatory approvals, environmental risks, cybersecurity, and general economic conditions.
- After quarter-end, the normal-course issuer bid reached its maximum share-purchase limit on October 19, 2023. On October 27, Imperial announced its intention to launch a substantial issuer bid for up to $1.5B of shares through a modified Dutch auction; price range and commencement details were to be determined. ExxonMobil, Imperial’s approximately 69.6% shareholder, indicated its intention to tender proportionately to maintain its ownership percentage.
- Imperial entered a long-term purchase agreement with a third party in Q2 valued at about $3B. Management said it would not affect disclosed 2023 and 2024 obligations and was not expected to materially affect operations, financial condition, or financial statements.
- Asset retirement obligations and other environmental liabilities totaled $2.189B in long-term obligations, plus $116M in current liabilities. Management reported disclosure controls as effective and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How commodity prices, the WTI/WCS differential, and refining margins affect subsequent earnings and cash generation.
- The size and timing of tax and working-capital cash-flow movements, including the $2.1B tax catch-up payment.
- Final terms, approvals, timing, and completion of the proposed $1.5B substantial issuer bid, including ExxonMobil’s participation.
- Production and refinery operating trends, planned turnaround costs, and progress on capital spending.
- Details and future cash-flow implications of the approximately $3B long-term purchase agreement and environmental obligations.