IMPERIAL OIL LTD annual report, FY2020

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Imperial Oil Limited — FY2020 Form 10-K

Reporting period: Year ended December 31, 2020; filed February 24, 2021. The filing reports annual results, with quarterly data for Q4. Amounts are in Canadian dollars unless noted. Imperial is an integrated Canadian oil and gas company, majority-owned (69.6%) by ExxonMobil.

Financial and operating performance

  • FY2020 revenue: $22.284 billion, down from $34.002 billion in 2019.
  • FY2020 net loss: $1.857 billion, or $2.53 per share, versus net income of $2.200 billion, or $2.88 per share, in 2019. Results included a $1.171 billion after-tax non-cash impairment of unconventional assets and approximately $115 million after-tax of CEWS wage-subsidy benefit.
  • Q4 2020: Revenue and other income was $6.033 billion and net loss was $1.146 billion, or $1.56 per share, compared with revenue and other income of $8.122 billion and net income of $271 million, or $0.36 per share, in Q4 2019.
  • Segment net income (loss): Upstream $(2.318) billion; Downstream $553 million; Chemical $78 million; Corporate and other $(170) million. Upstream’s loss reflected lower realizations, the impairment and lower volumes; Downstream and Chemical earnings also declined.
  • Cash flow and spending: Operating cash flow was $798 million, down from $4.429 billion. Investing activities used $802 million; capital and exploration expenditures were $874 million, versus $1.814 billion in 2019.
  • Liquidity and debt: Year-end cash was $771 million; current assets were $4.524 billion and current liabilities $3.380 billion. Total debt was $5.184 billion, broadly stable year over year; debt-to-capital was 19%, versus 18%. The company had not drawn on its committed credit facilities.
  • Shareholder returns: Dividends paid were $649 million; the declared annual dividend was $0.88 per share. Share repurchases were substantially suspended from April 1, 2020 to preserve cash; full-year purchases totaled approximately 9.8 million shares for $274 million.
  • Production and unit economics: Net oil-equivalent production averaged 384,000 barrels per day, up from 357,000. Average bitumen realization fell to $25.69 per barrel from $50.02; synthetic oil realization fell to $49.76 from $74.47. Total oil-equivalent unit production cost declined to $28.73 per barrel from $34.82.
  • Refining and sales: Refinery throughput averaged 340,000 barrels per day and utilization was 80%, versus 353,000 barrels per day and 83% in 2019. Petroleum product sales declined to 421,000 barrels per day from 475,000.

Material changes versus 2019

  • COVID-19-related demand reductions and lower commodity prices sharply reduced realizations, revenue, earnings and operating cash flow. WTI averaged US$39.26 per barrel in 2020, versus US$57.03 in 2019.
  • Imperial recorded a $1.171 billion after-tax impairment after deciding not to further develop a significant portion of its non-producing, undeveloped Montney and Duvernay portfolio. The company retains its interests and does not expect material future cash expenditures related to this impairment.
  • Proved reserves fell to 560 million oil-equivalent barrels from 3.492 billion. Low SEC price assumptions meant 2.2 billion barrels of Kearl bitumen and 0.6 billion barrels of Cold Lake bitumen no longer qualified as proved reserves; Imperial said it did not expect this reporting change to affect operations.
  • Proved undeveloped reserves declined to 138 million oil-equivalent barrels from 397 million, mainly reflecting Cold Lake and unconventional-asset revisions, partly offset by Syncrude additions.
  • Expenses were reduced: production and manufacturing expenses were $985 million below 2019. The annual bonus program was suspended, and 2021 executive base salaries were held at 2020 levels.

Outlook, risks and unusual items

  • 2021 outlook: Capital and exploration expenditures are expected to be about $1.2 billion. Imperial is targeting Kearl gross production of 255,000 barrels per day and expects Cold Lake gross bitumen production to average approximately 130,000 barrels per day.
  • Projects: Major Aspen investment remains on hold and the pace of the Cold Lake expansion is slower. Imperial is focusing upstream resources on key oil-sands assets and the most attractive unconventional opportunities.
  • Market and operating risks: COVID-19 recovery and demand remain uncertain. Results are exposed to oil and gas prices, refining and chemical margins, Canadian/U.S. exchange rates, transportation constraints, regulation and potential reintroduction of Alberta production curtailments.
  • Climate and environmental obligations: Carbon pricing, emissions rules, clean-fuel standards, project assessments, tailings management and reclamation requirements may raise costs or delay development. Environmental capital and operating expenditures were approximately $0.6 billion in 2020; about $1.1 billion was expected in 2021.
  • Other significant items: The company received approximately $155 million before tax under the CEWS. It reported $4.100 billion of other long-term obligations, including retirement benefits and asset-retirement/environmental liabilities. Management did not expect pending litigation or disclosed performance guarantees to have a material adverse effect.
  • Audit and controls: PwC issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified proved-reserve estimation and an upstream impairment assessment as critical audit matters.

Important facts for investors to verify

  • Whether commodity prices, product demand and operating cash flow recover sufficiently to support dividends and planned capital spending.
  • Whether the 2021 Kearl and Cold Lake production outlooks are achieved, and how the Aspen and Cold Lake expansion schedules evolve.
  • How future prices, costs and development plans affect proved reserves, asset values and the possibility of further impairments.
  • The terms, maturity and related-party concentration of Imperial’s $4.447 billion ExxonMobil long-term loan, and the status of committed credit facilities.
  • Whether pension, asset-retirement, environmental and climate-policy costs change materially from current estimates.