Imperial Oil Limited — FY 2012 Form 10-K
Reporting period: Year ended December 31, 2012; the filing also reports fourth-quarter results. Imperial is a Canadian integrated oil and gas company operating in Upstream, Downstream and Chemical. Exxon Mobil Corporation owned approximately 69.6% of its shares. Amounts below are Canadian dollars unless noted.
Financial and operating performance
| Metric | 2012 | 2011 |
|---|---|---|
| Operating revenue | $31.053 billion | $30.474 billion |
| Net income | $3.766 billion | $3.371 billion |
| Diluted earnings per share | $4.42 | $3.95 |
| Cash from operating activities | $4.680 billion | $4.489 billion |
| Capital and exploration expenditures | $5.683 billion | $4.066 billion |
| Cash at year-end | $482 million | $1.202 billion |
| Total debt at year-end | $1.647 billion | $1.207 billion |
| Total assets at year-end | $29.364 billion | $25.429 billion |
| Dividends per share | $0.48 | $0.44 |
Revenue rose about 2% and net income about 12%. Fourth-quarter net income was $1.076 billion, compared with $1.005 billion in Q4 2011; quarterly total revenues and other income were $7.804 billion versus $8.124 billion. No quarterly cash-flow figure is provided in the filing text.
Annual earnings improvement was driven mainly by stronger refining margins (about $975 million favorable) and lower royalties (about $300 million favorable). These gains were partly offset by lower Upstream realizations (about $580 million), higher Kearl readiness costs (about $125 million), higher planned refinery maintenance (about $80 million), and lower asset-divestment gains (about $85 million). Segment net income was Upstream $1.888 billion (down from $2.457 billion), Downstream $1.772 billion (up from $884 million), Chemical $165 million (up from $122 million), and Corporate and other negative $59 million.
Operating cash flow increased modestly, but investing activities used $5.238 billion, including $5.478 billion of property, plant and equipment additions. Financing activities used $162 million; cash declined by $720 million. The company reported total debt equal to 9% of capital. Current assets were $4.092 billion and current liabilities $5.905 billion. Other long-term obligations were $3.983 billion, including retirement-benefit and environmental obligations. The filing does not present a conventional free-cash-flow measure.
Net oil-equivalent production averaged 243,000 barrels per day, nearly unchanged from 242,000 in 2011. Net natural-gas sales averaged 177 million cubic feet per day, down from 237 million. Unit production cost on an oil-equivalent basis rose to $29.10 per barrel from $26.63, primarily reflecting Kearl pre-start-up costs. Refinery throughput averaged 435,000 barrels per day, at 86% utilization.
Material changes and business developments
- Upstream earnings fell as Canadian crude discounts and lower gas prices weakened realizations; annual average realizations declined for conventional crude, synthetic oil, bitumen and natural gas.
- Downstream earnings more than doubled, benefiting from a wider spread between refined-product prices and Western Canadian crude costs. Chemical earnings and sales volumes also increased.
- Kearl’s initial development was construction-complete at year-end, with phased start-up underway; first production from the first froth-treatment train was expected in Q1 2013. Expected final cost was $12.9 billion, including Imperial’s $9.2 billion share. The expansion was 27% complete at year-end.
- Cold Lake’s $2 billion Nabiye expansion was 37% complete; it is expected to add more than 40,000 barrels per day gross, with start-up expected at year-end 2014.
- After year-end, on February 26, 2013, Imperial acquired a 50% interest in Celtic Exploration assets for $1.6 billion, financed with related-party and third-party debt. The assets include substantial Montney and Duvernay acreage. Fair values were not finalized by filing, and the acquisition was not expected to materially affect 2012 results.
Outlook, risks and unusual items
- Management expected 2013 company capital and exploration spending of about $7 billion, including approximately $6.8 billion Upstream spending and $1.6 billion for Imperial’s Celtic participation. The company described a long-term plan to invest about $40 billion and double Upstream production by the end of the decade; actual spending and volumes depend on project progress.
- Management expected environmental capital and operating expenditures of about $1.6 billion in 2013. The Dartmouth refinery was being marketed, with alternatives including conversion to a products terminal; a decision was expected in 2013. First Marcellus ethane deliveries to the Sarnia chemical plant were expected around mid-2013.
- Key exposures include volatile oil and gas prices, Western Canadian crude differentials and bitumen market access, exchange-rate movements, regulatory and environmental requirements, project cost and schedule execution, operational disruptions, and reserve-estimation uncertainty. The company did not use derivatives to hedge commodity, currency or interest-rate exposures.
- Environmental spending was about $1.0 billion in 2012. The filing warns that future regulation, including greenhouse-gas and other environmental rules, could increase costs; some effects could not yet be estimated. Transportation constraints could also affect oil-sands growth.
- In January–September 2012, fleet fuel sales to the Iranian Embassy in Canada totaled about $11,000, with earnings below $500; no sales occurred after the relevant Act took effect on October 10, and Imperial said it did not expect future sales.
- Management said pending lawsuits were not expected to have a material adverse effect. The filing reports $5.226 billion of firm capital commitments, including Kearl and Nabiye, and $6.987 billion of other long-term purchase agreements, including new pipeline transportation commitments.
PricewaterhouseCoopers LLP issued an unqualified audit opinion on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether Kearl achieved its expected Q1 2013 start-up, and how final costs, ramp-up and expansion timing compare with plan.
- Whether the Celtic acquisition’s finalized purchase accounting, financing costs, production contribution and cash-flow impact match management’s expectations.
- How crude differentials, bitumen transportation access and refining margins affect the balance between Upstream and Downstream results.
- Whether 2013 capital spending and environmental outlays remain within guidance, and how committed project and transportation spending is funded.
- Changes in debt, liquidity, pension funding and other long-term obligations; confirm the effect of post-year-end borrowing for Celtic.
- Reserve estimates and development assumptions: proved undeveloped reserves were 2.318 billion oil-equivalent barrels, about 65% of proved reserves, largely associated with Kearl and Cold Lake. No independent reserves evaluator or auditor was involved.