Imperial Oil Limited — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Unaudited consolidated results are prepared under U.S. GAAP; amounts are in Canadian dollars unless stated otherwise.
Financial results and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Operating revenues | $6,985 million | $6,225 million | $13,943 million | $11,399 million |
| Net income (loss) | $(77) million | $(181) million | $256 million | $(282) million |
| Diluted earnings (loss) per share | $(0.09) | $(0.21) | $0.30 | $(0.33) |
| Operating cash flow | $492 million | $443 million | $846 million | $492 million |
| Capital and exploration expenditures | $143 million | $335 million | $296 million | $743 million |
- Q2 pre-tax loss was $125 million versus $252 million loss a year earlier; six-month pre-tax income was $295 million versus a $401 million loss.
- Q2 net loss improved to $77 million from $181 million. For the half year, the company moved to $256 million net income from a $282 million loss.
- At June 30, cash was $623 million (December 31, 2016: $391 million). Current assets were $3,756 million and current liabilities $3,205 million.
- Long-term debt, including capital leases, was $5,019 million, little changed from $5,032 million at year-end. Total liabilities were $16,105 million and shareholders’ equity $25,000 million.
- Q2 investing used $281 million and financing used $260 million; six-month investing used $220 million and financing used $394 million. Six-month financing outflow reflected dividends and share repurchases and no current-year debt issuance.
- Q2 and first-half dividends paid were $127 million and $254 million, respectively. Q2/first-half share repurchases totaled 3.3 million shares for $127 million.
Operations and changes versus prior periods
- Upstream: Q2 net loss narrowed to $201 million from $290 million; first-half loss narrowed to $287 million from $738 million. Higher Canadian crude realizations and favorable Q2 foreign exchange helped, offset by higher energy and operating costs. First-half results also reflected higher royalties, Syncrude costs and lower volumes.
- Q2 gross production averaged 160,000 barrels/day at Cold Lake, 171,000 at Kearl and Imperial’s share of Syncrude averaged 27,000. Kearl production benefited from the absence of 2016 Alberta wildfire impacts; the March Syncrude upgrader fire and planned maintenance affected Syncrude output.
- Downstream: Q2 net income rose to $78 million from $71 million; first-half income rose to $458 million from $391 million. Reduced turnaround activity supported results, partly offset by weaker marketing and refining margins. Refinery throughput increased to 358,000 barrels/day in Q2 and 378,000 for the half year.
- Chemical: Q2 net income increased to $64 million from $55 million; first-half income rose to $109 million from $104 million.
- First-half investment and other income included a $213 million pre-tax gain on asset sales, including a $174 million gain ($151 million after tax) from selling surplus Ontario property. The gain materially benefited reported earnings.
- First-half operating cash flow increased to $846 million from $492 million, reflecting higher earnings partly offset by unfavorable working-capital effects. Capital and exploration expenditures declined to $296 million from $743 million.
Outlook, risks and other matters
- The filing provides no formal earnings or operating guidance. Management cautions that first-half results are not necessarily indicative of full-year results.
- The company expected third-quarter 2017 share purchases of approximately $250 million, while noting purchase plans could be modified. A new issuer bid permits purchases of up to 25,395,927 shares through June 26, 2018; Exxon Mobil intends to participate to maintain its approximately 69.6% ownership.
- Forward-looking results may differ due to market conditions, changes in law or government policy, operating conditions and costs, project schedules, performance, oil and gas demand, commercial negotiations, and technical or economic factors.
- Imperial was charged in Ontario over an alleged 2015 discharge from its Sarnia refinery. The filing says no determination of impact can be made at this time.
- Management reported disclosure controls and procedures were effective as of June 30, 2017, with no material change in internal control over financial reporting during the quarter.
- Revenue-contract accounting adoption was planned for January 1, 2018, with no material financial-statement effect expected; lease accounting adoption was planned for 2019 and remained under evaluation.
Most important facts for investors to verify
- How much of first-half profitability and cash generation is repeatable apart from the Ontario property-sale gain and working-capital movements.
- Whether Syncrude fire-related disruption, planned maintenance, and higher upstream costs persist, and how production develops across Cold Lake, Kearl and Syncrude.
- Trends in crude-price realizations, WTI/WCS differentials, refining and marketing margins, and refinery utilization.
- Capital spending plans, the pace and funding of share repurchases, dividend sustainability, and the company’s related-party debt exposure.
- Developments, potential penalties or other consequences in the Sarnia environmental proceeding; the filing does not quantify a potential liability.