Imperial Oil Limited — FY2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021; it is not a quarterly-only report. Imperial is a Canadian integrated oil company operating in Upstream, Downstream and Chemical. Unless otherwise stated, amounts are Canadian dollars. ExxonMobil owns approximately 69.6% of the company.
Key financial and operating metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $37.508 billion | $22.284 billion |
| Net income (loss) | $2.479 billion | $(1.857) billion |
| Diluted earnings (loss) per share | $3.48 | $(2.53) |
| Cash from operating activities | $5.476 billion | $798 million |
| Free cash flow, non-GAAP | $4.464 billion | Not clearly provided in the supplied filing text |
| Cash and cash equivalents at year-end | $2.153 billion | $771 million |
| Total debt at year-end | $5.176 billion | $5.184 billion |
| Debt-to-capital ratio | 19% | 19% |
| Capital and exploration expenditures | $1.140 billion | $874 million |
| Dividends declared per share | $1.03 | $0.88 |
Segment net income in 2021 was $1.395 billion Upstream, $895 million Downstream, $361 million Chemical and a $172 million loss in Corporate and other. In 2020, Upstream recorded a $2.318 billion loss, while Downstream earned $553 million and Chemical earned $78 million.
Production averaged 383,000 net oil-equivalent barrels per day, compared with 384,000 in 2020; gross production was 428,000 barrels per day, the highest in over 30 years. Refinery throughput rose to 379,000 barrels per day and capacity utilization to 89%, from 340,000 barrels per day and 80%. Net petroleum product sales increased to 456,000 barrels per day from 421,000.
Material changes versus the prior comparable period
- Revenue increased about 68%, and Imperial moved from a net loss to profit as oil and gas realizations and Downstream and Chemical margins improved during the recovery in demand.
- Upstream net income improved by approximately $3.7 billion year over year. Higher realizations contributed about $3.640 billion and higher volumes about $550 million; increased royalties reduced income by about $680 million, while higher operating expenses and other items partly offset the gains.
- Downstream net income increased to $895 million, with stronger product margins contributing about $600 million. Chemical net income rose to $361 million, primarily on stronger polyethylene margins.
- Operating cash flow rose to $5.476 billion. Investing cash outflow was $1.012 billion, while financing cash outflow increased to $3.082 billion, primarily reflecting $2.245 billion of share repurchases and $706 million of dividends paid.
- Imperial repurchased 56.0 million shares for $2.245 billion in 2021, versus 9.8 million shares for $274 million in 2020. The 2021 share purchase program reached its maximum and was completed on January 31, 2022.
- Proved reserves increased to 2.717 billion oil-equivalent barrels from 560 million at year-end 2020. Improved prices drove major reserve reclassifications at Kearl and Cold Lake; the increase is not solely evidence of newly discovered resources.
Outlook, management commentary, risks and unusual items
- Management expects 2022 capital and exploration expenditures of approximately $1.4 billion, including $290 million of firm commitments for 2022. Actual spending may vary with project progress.
- Imperial targets a 30% reduction in operated oil sands Scope 1 and 2 emissions intensity by 2030 versus 2016, and net-zero Scope 1 and 2 emissions from its oil sands operations by 2050. It reported remaining on track for its prior 10% intensity-reduction goal by the end of 2023.
- The company announced plans for a renewable diesel complex at Strathcona; a final investment decision was expected in fourth-quarter 2022 and remained conditional on several factors. Aspen development remains on hold, with timing to be reassessed.
- In January 2022, Imperial announced it would jointly market its 50% interest in XTO Energy Canada with ExxonMobil. No definitive sale decision had been made; operations were expected to continue normally during the marketing process.
- Key risks include volatile commodity prices and refining margins, Western Canadian price differentials and transport constraints, inflation and supply-chain disruption, COVID-19 uncertainty, environmental and climate regulation, project execution, operational and cybersecurity incidents, and reserve-estimation uncertainty. The filing identifies no material fixed-volume oil or gas delivery commitments.
- Imperial was charged in Ontario in October 2021 over alleged petroleum-product discharges and failure to notify regulators at its Nanticoke refinery in 2019. The filing says the impact could not then be determined. Management said pending litigation was not expected to have a material adverse effect overall.
- An unfavourable $74 million after-tax inventory adjustment was recorded in 2021, including a $57 million after-tax out-of-period component relating to prior years. Management said the matter was resolved and not material to 2021 or prior periods; comparative statements were not restated.
- The consolidated statements received an unqualified audit opinion, and the auditor also concluded internal control over financial reporting was effective. The audit identified proved oil and gas reserves’ effect on Upstream property, plant and equipment as a critical audit matter.
Most important facts for investors to verify
- Whether stronger commodity prices and refining margins, rather than durable operating improvements, explain most of the earnings and cash-flow recovery.
- How much of the 2021 reserve increase reflects price-driven SEC qualification changes, and the timing and funding assumptions for undeveloped reserves.
- Progress on the XTO Energy Canada marketing process, Aspen, the Strathcona renewable diesel proposal and the stated emissions-intensity goals.
- The durability of shareholder returns after the completed buyback program, alongside the planned $1.4 billion 2022 capital budget and dividend commitments.
- Developments in the Nanticoke proceedings, environmental obligations, carbon-policy costs and other contingencies; assess the company’s $4.447 billion long-term loan from ExxonMobil and related-party transactions as part of the capital and governance review.