Imperial Oil Limited — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; U.S. GAAP, unaudited. Unless noted, amounts are Canadian dollars in millions. Comparisons are with the corresponding 2014 periods.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Operating revenue | $7,272 | $9,399 | $13,442 | $18,596 |
| Net income | $120 | $1,232 | $541 | $2,178 |
| Diluted earnings per share | $0.14 | $1.45 | $0.64 | $2.56 |
| Cash from operating activities | $377 | $999 | $658 | $2,084 |
| Capital expenditures and exploration | $819 | $1,398 | $1,869 | $2,632 |
- Q2 income before tax was $596 million and income taxes were $476 million. Q2 net income included a largely non-cash $320 million charge related to Alberta’s corporate tax-rate increase.
- Q2 operating cash flow was below net income; working-capital movements and lower earnings weighed on cash generation. Six-month cash flow also fell sharply from 2014.
- At June 30, cash was $28 million; current assets were $4,174 million and current liabilities $5,948 million. Notes and loans payable were $1,976 million and long-term debt was $6,008 million, versus $4,913 million at year-end 2014. Total debt, including current borrowings, was approximately $7,984 million.
- Total assets were $42,834 million and shareholders’ equity $22,759 million. Other long-term obligations totaled $3,973 million, including $1,518 million of asset-retirement and other environmental liabilities and $1,870 million of retirement-benefit obligations.
- Dividends were $0.13 per share in Q2 and $0.26 per share for the first half, unchanged year over year. No shares were repurchased during Q2.
Operating results and changes versus 2014
- Revenue declined about 23% in Q2 and 28% for the first half. Net income fell to $120 million in Q2 and $541 million for six months. The 2014 comparisons benefited from a substantial conventional upstream asset-sale gain; 2015 results also absorbed the Alberta tax charge.
- Upstream: Q2 net loss was $174 million, compared with $857 million of income; first-half net loss was $363 million, compared with $1,309 million of income. Lower oil and gas realizations and the tax charge were major negatives. Higher Kearl and Cold Lake volumes, a weaker Canadian dollar, and lower royalties partly offset them.
- WTI was down 44% year over year in Q2 and 47% for the first half. Q2 Canadian-dollar realizations for synthetic crude and bitumen fell 33% and 35%, respectively; first-half realizations fell 41% and 45%. Natural-gas realizations also declined.
- Production growth was led by Cold Lake and Kearl. Q2 gross Cold Lake bitumen production averaged 161,000 barrels per day and Kearl averaged 130,000 barrels per day (92,000 barrels per day Imperial’s share). Conventional oil and natural-gas production fell, largely reflecting properties divested in 2014.
- Downstream: Q2 net income was $215 million, down $151 million, principally from lower margins and higher planned refinery maintenance, partly offset by currency effects. First-half income was $780 million, down $74 million; lower margins and maintenance were partly offset by currency, lower energy costs, and an asset-sale gain.
- Chemical: Q2 income rose to $69 million from $57 million, described as a quarterly record. First-half income rose to $135 million from $100 million, mainly on strong polyethylene operations and margins.
Liquidity, outlook, risks and unusual items
- Q2 investing used $724 million; additions to property, plant and equipment were $773 million. Expenditures were primarily directed to completing upstream growth projects. The company funded operations and projects in part through affiliate borrowing: long-term debt increased by $1,106 million in the first half.
- After quarter-end, Imperial raised the capacity of its floating-rate loan facility with an ExxonMobil affiliate from $6.25 billion to $7.75 billion. It also entered into an approximately $500 million long-term capital lease for the Woodland pipeline. The company had separately extended a $500 million short-term bank facility to March 2016; it was undrawn.
- Management expected Nabiye production to reach approximately 40,000 barrels per day, before royalties, by year-end 2015. The filing provides no broader earnings or financial guidance; it cautions that first-half results are not necessarily indicative of full-year results.
- Reported after-tax annual earnings sensitivities were approximately $350 million for a $5-per-barrel change in crude prices and $720 million for an 8-cent change in the Canadian dollar versus the U.S. dollar. Results remain exposed to commodity prices, currency, operating costs and conditions, demand, regulation, project schedules, and technical and economic factors.
- Q2 comprehensive income was $162 million; first-half comprehensive income was $449 million, including a $92 million other comprehensive loss for the half, chiefly reflecting post-retirement benefit adjustments.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It was evaluating a new revenue-recognition standard expected to be adopted beginning January 1, 2018.
Important facts for investors to verify
- How much of the earnings decline reflects sustained commodity-price and refining-margin pressure versus the non-cash Alberta tax charge and the prior-year asset-sale gain.
- Production, reliability, costs, and schedule for Kearl and Cold Lake/Nabiye, including whether Nabiye meets the stated year-end production expectation.
- Debt and liquidity implications of affiliate borrowings, the expanded affiliate facility, and the Woodland pipeline lease; review the related terms and maturity profile.
- Cash conversion and working-capital trends, given lower operating cash flow and cash of only $28 million at quarter-end.
- Exposure to commodity prices and foreign exchange, and the underlying assumptions and period for the filing’s earnings sensitivities.