Imperial Oil Limited — Q1 2014 Form 10-Q
Unaudited U.S. GAAP results for the three months ended March 31, 2014; amounts are Canadian dollars (CAD) unless noted. Comparisons are with Q1 2013, except balance-sheet figures, which compare March 31, 2014 with December 31, 2013.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Operating revenue | CAD 9,197 million | CAD 7,999 million |
| Income before tax | CAD 1,260 million | CAD 1,070 million |
| Net income | CAD 946 million | CAD 798 million |
| Diluted EPS | CAD 1.11 | CAD 0.94 |
| Operating cash flow | CAD 1,085 million | CAD 597 million |
| Capital additions to PP&E | CAD 1,206 million | CAD 1,345 million |
| Cash | CAD 102 million | CAD 272 million at Dec. 31, 2013 |
| Total debt, including capital leases | CAD 6,285 million | CAD 6,287 million at Dec. 31, 2013 |
| Current assets / current liabilities | CAD 4,889 million / CAD 7,659 million | CAD 4,287 million / CAD 7,088 million at Dec. 31, 2013 |
Revenue rose about 15% and net income about 19% year over year. Net income was approximately 10.3% of operating revenue; the filing does not present a named consolidated margin measure. Operating cash flow increased substantially, supported by higher earnings and working-capital effects. Investing used CAD 1,143 million, versus CAD 2,935 million in Q1 2013, which included the CAD 1,602 million Celtic acquisition. Financing used CAD 112 million, compared with CAD 2,179 million of inflow a year earlier. Dividends paid were CAD 110 million, or CAD 0.13 per share.
Segment net income was CAD 452 million upstream (CAD 300 million in Q1 2013), CAD 488 million downstream (CAD 478 million), and CAD 43 million chemicals (CAD 35 million). Corporate and other was a CAD 37 million loss, versus a CAD 15 million loss.
Operating developments and changes
- Upstream earnings improved by CAD 152 million. Management attributed the increase mainly to higher liquids realizations (about CAD 200 million), Kearl production and higher Syncrude volumes (about CAD 90 million), and a weaker Canadian dollar (about CAD 85 million). Offsets included higher royalties (about CAD 115 million), lower Cold Lake volumes (about CAD 65 million), and higher energy costs (about CAD 40 million).
- Cold Lake bitumen production averaged 147,000 barrels per day, down from 164,000, due to steam-cycle effects and third-party power outages. Imperial’s share of Syncrude production rose to 73,000 barrels per day from 65,000. Kearl gross production averaged 70,000 barrels per day, with the company targeting 110,000 barrels per day for the initial development.
- Synthetic crude realizations increased 11%. Bitumen realizations averaged CAD 65.19 per barrel versus CAD 43.63, and natural gas realizations rose CAD 3.06 to CAD 6.56 per thousand cubic feet.
- Downstream earnings benefited from improved reliability, partly offset by lower industry refining margins. Chemical earnings increased on higher margins across major product lines.
- Depreciation and depletion rose to CAD 280 million from CAD 185 million. The company recorded CAD 20 million of pretax gains on asset sales, versus CAD 4 million.
Outlook, risks, and notable items
- No specific earnings or production guidance is provided. Management said results for the quarter are not necessarily indicative of the full year. It cited market conditions, legal or policy changes, operating conditions and costs, project schedules, performance, oil and gas demand, negotiations, and technical or economic factors as sources of possible variation.
- After quarter-end, on May 1, 2014, Imperial completed the sale of specified western Canadian conventional oil and gas interests for approximately CAD 855 million cash. The assets produced about 15,000 oil-equivalent barrels per day in 2013. The anticipated gain, subject to closing adjustments, was CAD 635–700 million before tax and CAD 475–525 million after tax.
- Market-risk sensitivities were estimated at approximately CAD 435 million after tax for a USD 9-per-barrel crude-price change and CAD 620 million after tax for a nine-cent change in the Canadian dollar versus the U.S. dollar. These are sensitivities, not forecasts.
- Long-term debt included CAD 4,316 million owed to an ExxonMobil affiliate. In January, the affiliated floating-rate loan facility limit increased from CAD 5 billion to CAD 6.25 billion. The company also extended its undrawn CAD 500 million bank credit facility to March 2015.
- Other long-term obligations totaled CAD 3,114 million, including CAD 1,430 million for employee retirement benefits and CAD 1,269 million for asset-retirement and environmental liabilities. Disclosure controls were assessed as effective; no material quarterly change in internal control was reported.
Important facts for investors to verify
- Confirm the final proceeds and realized gain on the May 1 asset sale, including closing adjustments and the use of proceeds.
- Track Kearl’s ramp-up toward its stated target and the effects of project spending, reliability, and operating costs.
- Assess whether stronger operating cash flow is sustainable, given the quarter’s working-capital contribution and the CAD 2.77 billion excess of current liabilities over current assets.
- Monitor crude-price, foreign-exchange, royalty, and refining-margin exposure, as well as Cold Lake production interruptions and environmental and retirement obligations.
- Review the company’s related-party financing terms and the availability of its undrawn credit facilities.