Imperial Oil Limited — Q1 2021 Form 10-Q
Unaudited U.S. GAAP results for the three months ended March 31, 2021; amounts are in Canadian dollars unless noted. Comparisons are with Q1 2020. The company operates in Upstream, Downstream and Chemical segments.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $6,992 million | $6,664 million |
| Income (loss) before tax | $512 million | $(255) million |
| Net income (loss) | $392 million | $(188) million |
| Diluted earnings (loss) per share | $0.53 | $(0.25) |
| Cash from operating activities | $1,045 million | $423 million |
| Cash used in investing activities | $147 million | $308 million |
| Cash used in financing activities | $202 million | $445 million |
Revenue increased about 5%. Cash at March 31 was $1,467 million, versus $771 million at December 31, 2020. Current assets were $5,848 million and current liabilities $3,933 million. Long-term debt, including finance leases, was $4,953 million; notes and loans payable were $191 million. Total liabilities were $17,271 million and shareholders’ equity was $21,736 million.
Quarterly dividends declared were $0.22 per share; $162 million was paid. No shares were repurchased during the quarter. Capital and exploration expenditures were $163 million, compared with $331 million in Q1 2020.
Segments and changes versus prior year
- Upstream: Net income was $79 million, versus a $608 million loss. Higher realizations contributed about $700 million and the absence of a prior-year inventory revaluation charge contributed to the improvement; partly offset by about $100 million in higher royalties, $70 million of unfavorable foreign exchange effects and $60 million of higher operating expenses. WTI averaged US$58.14/barrel versus US$45.78; WCS averaged US$45.64 versus US$25.60.
- Downstream: Net income was $292 million, versus $402 million. Lower margins (about $150 million) and sales volumes (about $60 million) were partly offset by the absence of a prior-year inventory charge and about $50 million of lower operating expenses. Refinery throughput fell to 364,000 barrels/day from 383,000; utilization was 85% versus 91%; product sales were 414,000 barrels/day versus 462,000.
- Chemical: Net income increased to $67 million from $21 million.
- Corporate and other: Expenses increased to $46 million from $3 million, mainly due to higher share-based compensation.
Management cited recovering crude and gas prices and stronger Downstream and Chemical margins, while noting that lingering effects of the weak 2020 business environment continued to weigh on results. The Q1 2020 comparison included a $281 million after-tax inventory revaluation charge and a $20 million non-cash goodwill impairment charge.
Liquidity, commitments and risks
- Operating cash flow rose primarily due to higher Upstream realizations. Investing cash use declined mainly because of lower property, plant and equipment additions.
- Following termination of transportation services agreements for a third-party pipeline project, Imperial recognized a $62 million liability. Related “other long-term purchase agreement” commitments fell by approximately $2.9 billion, mostly relating to 2026 and later years.
- On April 30, 2021, after quarter-end, Imperial announced an increase in its share-repurchase authorization to a maximum of 29,363,070 shares through June 28, 2021, and said it anticipated maximizing purchases. Plans may be modified without notice.
- Management identified uncertainties including COVID-19 effects on demand and operations, commodity prices and margins, exchange rates, regulation and tax policy, capital availability, and operational or project execution risks. The filing provides no quantified earnings or production guidance; it cautions that quarterly results are not necessarily indicative of full-year results.
- Derivative activity produced a $14 million loss in purchases of crude oil and products in Q1 2021, compared with a $35 million gain in Q1 2020. The company uses derivatives to manage commodity risk and does not apply hedge accounting.
Important facts for investors to verify
- Whether stronger commodity prices and operating conditions persist, and how they affect realizations, margins and cash generation.
- Whether Downstream demand, refinery throughput and product sales recover from pandemic-related weakness.
- The timing, terms and cash implications of the $62 million pipeline-related liability and the reduction in future commitments.
- Actual share repurchases under the amended authorization and their effect on cash, capital allocation and share count.
- Exposure to commodity, currency, regulatory, COVID-19 and operational risks, including the assumptions underlying management’s forward-looking statements.