Imperial Oil Limited — Q2 2023 Form 10-Q
Business context and reporting period. Unaudited U.S. GAAP results for the quarter and six months ended June 30, 2023. Amounts are Canadian dollars unless noted. Imperial operates Upstream, Downstream and Chemicals businesses.
Financial results and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $11.764B | $17.285B | $23.821B | $29.942B |
| Net income | $675M | $2.409B | $1.923B | $3.582B |
| Diluted EPS | $1.15 | $3.63 | $3.29 | $5.36 |
| Cash from operations | $885M | $2.682B | $64M | $4.596B |
| Capital and exploration expenditures | $493M | $314M | $922M | $610M |
- Q2 revenue declined about 32% and net income about 72% year over year. For the first half, revenue fell about 20% and net income about 46%.
- At June 30, cash was $2.376B, down from $3.749B at year-end 2022. Current assets were $9.290B and current liabilities $6.229B.
- Long-term debt was $4.022B, including $3.447B of debt and $575M of finance leases; notes and loans payable were $122M. Total liabilities were $18.298B and shareholders’ equity $23.828B.
- Q2 declared dividends were $0.50 per share; first-half declared dividends were $0.94 per share. The company made no share repurchases in the first half.
Material changes and operating commentary
- Management attributed weaker earnings to lower crude realizations and downstream margins. The first-half environment included lower crude prices, a wider WTI/WCS spread than in the prior-year period, and weaker refining margins.
- Upstream Q2 net income was $384M versus $1.346B; Downstream was $250M versus $1.033B; Chemicals was $71M versus $53M. First-half segment net income was $714M, $1.120B and $124M, respectively, compared with $2.128B, $1.422B and $109M.
- Q2 upstream production was lower at Cold Lake and Syncrude, largely due to production-cycle timing and Syncrude’s planned coker turnaround. Downstream refinery utilization was 90%, versus 96%, reflecting planned work at Strathcona.
- First-half operating cash flow was sharply lower, primarily due to working-capital effects, including a $2.1B income-tax catch-up payment, as well as lower upstream realizations and downstream margins. Cash taxes paid were $3.189B versus $275M in the first half of 2022.
- Management cited favorable foreign-exchange effects and lower operating expenses as partial offsets to upstream price pressure; favorable foreign exchange and improved volumes partly offset downstream weakness and turnaround impacts.
Outlook, risks and other notable items
- No specific earnings or production guidance is provided in the filing. Management said it plans to accelerate purchases under its new normal course issuer bid and expects to buy all remaining allowable shares before year-end; the program permits purchases of up to 29,207,635 shares through June 28, 2024. Plans may change without notice. Exxon Mobil intends to participate to maintain approximately 69.6% ownership.
- Imperial entered into a long-term purchase agreement with a third party valued at about $3B. It does not affect 2023 or 2024 obligations disclosed in the 2022 annual report; management does not expect a material effect on operations, financial condition or financial statements.
- Asset retirement obligations and other environmental liabilities were $2.165B, including $116M in current liabilities. The filing also notes $60M of undiscounted commitments for leases not yet commenced.
- Commodity prices, differentials and refining margins, operational hazards, project execution, regulation, currency movements, cybersecurity and general economic conditions are among the risks described. The filing says market-risk disclosures did not differ materially from the 2022 annual report. No identified items were reported for Q2 or the first half.
- Disclosure controls were assessed as effective; the company reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether crude prices, WTI/WCS differentials and refining margins recover or further affect earnings.
- How working capital and tax payments affect cash generation after the substantial first-half cash-flow decline.
- Turnaround completion, production trends at Cold Lake and Syncrude, and ongoing Kearl performance.
- Actual share purchases under the issuer bid, including the expected participation of Exxon Mobil.
- The terms, timing and financial implications of the approximately $3B long-term purchase agreement and environmental obligations.