Imperial Oil Limited — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amounts are in Canadian dollars unless otherwise noted. The filing is unaudited and prepared under U.S. GAAP.
Financial results and liquidity
- Revenue: $6.664 billion, down 16% from $7.965 billion in Q1 2019. Total revenues and other income were $6.690 billion.
- Profit: Net loss of $188 million, or $0.25 per diluted share, versus net income of $293 million, or $0.38 per diluted share, a year earlier. The loss included non-cash inventory revaluation charges of $281 million and a $20 million goodwill impairment.
- Cash flow: Operating cash flow was $423 million, versus $1.003 billion in Q1 2019. Investing activities used $308 million, including $310 million of property, plant and equipment additions. Financing activities used $445 million.
- Cash and liquidity: Cash was $1.388 billion at quarter-end, down from $1.718 billion at December 31, 2019, but above $1.011 billion at March 31, 2019. Current assets were $4.687 billion and current liabilities were $3.466 billion.
- Debt and obligations: Long-term debt, including finance leases, was $4.969 billion; notes and loans payable were $229 million. Other long-term obligations totaled $3.733 billion, including retirement benefits and environmental liabilities.
- Shareholder returns: Dividends declared were $0.22 per share, versus $0.19 a year earlier. Imperial repurchased approximately 9.8 million shares for $274 million during the quarter and suspended its share purchase program effective April 1, 2020.
Material changes and operating performance
- Upstream: Net loss of $608 million versus income of $58 million. Lower crude realizations reduced results by about $630 million; lower royalties partly offset this by about $110 million, with favorable foreign exchange effects of about $50 million. Inventory charges and goodwill impairment also weighed on results.
- Downstream: Net income increased to $402 million from $257 million. Higher margins contributed about $190 million and lower reliability-event impacts about $50 million, partly offset by lower sales volumes and a $52 million inventory charge. Refinery throughput was 383,000 barrels per day, with 91% capacity utilization; product sales declined to 462,000 barrels per day from 477,000.
- Chemicals: Net income was $21 million, compared with $34 million.
- WTI averaged US$45.78 per barrel versus US$54.90; WCS averaged US$25.60 versus US$42.44. The WTI/WCS differential widened to about US$20 per barrel from about US$12.
- Operating cash flow fell primarily because of lower Upstream realizations and unfavorable working-capital effects. Capital and exploration expenditures were $331 million, compared with $529 million.
Outlook, risks and unusual items
- Imperial reduced its 2020 capital and exploration expenditure outlook to $1.1–$1.2 billion from $1.6–$1.7 billion and identified opportunities to reduce 2020 operating expenses by $500 million compared with 2019.
- Management expected near-term financial and operating impacts from COVID-19, reduced demand and lower commodity prices. If conditions persisted, lower realized prices could reduce earnings and operating cash flow.
- For Q2, Imperial planned reduced operating rates and revised turnarounds. Kearl gross production was expected to average about 150,000 barrels per day; Syncrude production, Imperial’s share, was expected at about 45,000–50,000 barrels per day. Lower refinery utilization and product sales were also expected.
- The duration and severity of demand disruption and market uncertainty were difficult to predict. Persistently low prices could affect long-lived asset values and SEC proved-reserve estimates; the company said potential future impairment charges and reserve revisions could not be reasonably estimated.
- COVID-19, production oversupply, commodity-price and margin volatility, possible operational or supply-chain disruption, and potential increases in financing costs were identified as risks. The company said COVID-19 cases at operating sites had not materially affected operations as of the filing.
- Imperial reported $1.4 billion of cash at quarter-end and said it could use commercial paper, issue long-term debt or draw on unused credit lines to strengthen liquidity. It also planned to apply for the Canada Emergency Wage Subsidy.
Most important facts for investors to verify
- Whether lower oil and product demand, commodity prices and the widened WTI/WCS differential persist, and how they affect realized prices and operating cash flow.
- Whether the announced capital and operating cost reductions are achieved without materially affecting production, reliability or project plans.
- Whether Q2 turnaround schedules and production expectations for Kearl and Syncrude are met, and how refinery utilization and product sales evolve.
- Whether inventory values recover or require further adjustment, and whether lower long-term price assumptions trigger additional asset impairments or proved-reserve revisions.
- How liquidity, working capital, debt and shareholder distributions change after the share-repurchase suspension.