IMPERIAL OIL LTD quarterly report, Q1 FY2018

Imperial Oil Limited — Q1 2018 Form 10-Q

Reporting period: Three months ended March 31, 2018. Unaudited U.S. GAAP statements; amounts are Canadian dollars unless noted.

Revenue was $7.90 billion, up 13.5% from $6.96 billion. Total revenue and other income was $7.93 billion, compared with $7.16 billion.
Net income rose 55% to $516 million from $333 million; diluted EPS was $0.62 versus $0.39. Net margin was approximately 6.5%, compared with 4.8% in Q1 2017.
Operating cash flow was $985 million, up from $354 million. Investing activities used $365 million, while financing activities used $390 million. Cash increased by $230 million to $1.43 billion.
Cash additions to property, plant and equipment were $371 million, compared with $122 million. Separately, reported segment capital and exploration expenditures were $274 million versus $153 million; the filing’s CAPEX definition differs from cash additions.
At March 31, current assets were $5.43 billion and current liabilities $3.74 billion, implying a current ratio of approximately 1.45. Total debt, including current notes and loans payable, was approximately $5.20 billion; less cash, net debt was approximately $3.78 billion.
Total assets were $41.58 billion, total liabilities $17.00 billion, and shareholders’ equity $24.58 billion. Dividends were $0.16 per share; $250 million was spent repurchasing approximately 7.2 million shares.

Upstream: Net loss narrowed to $44 million from $86 million. Higher Canadian crude realizations contributed about $90 million, partly offset by unfavorable foreign exchange. Cold Lake production averaged 153,000 barrels per day, down from 158,000; Kearl gross production was 182,000 barrels per day, unchanged; Imperial’s Syncrude share averaged 65,000 barrels per day, versus 66,000.
Downstream: Net income increased to $521 million from $380 million, mainly on approximately $310 million of stronger margins. Refinery throughput rose to 408,000 barrels per day from 398,000; utilization was 96%. Product sales declined to 478,000 barrels per day from 486,000.
Chemical: Net income increased to $73 million from $45 million, primarily due to stronger margins.
Prior-year comparisons include a $174 million pretax gain ($151 million after tax) from surplus Ontario property. Its absence weighed on the year-over-year comparison, particularly in downstream.
Revenue increased while purchases of crude oil and products and production costs also rose. Income before tax was $697 million versus $420 million; income tax expense was $181 million versus $87 million.

The filing provides no quantified earnings or production guidance and cautions that first-quarter results are not necessarily indicative of full-year results.
Management cited market conditions, changes in law or government policy, operating conditions and costs, project schedules, operating performance, oil and gas demand, commercial negotiations, and technical or economic factors as risks to future results.
On April 27, 2018, Imperial announced approval to increase the maximum shares purchasable under its issuer bid to 42,326,545 through June 26, 2018. Management had stated it anticipated maximizing purchases in Q2, subject to its evaluation of capital activities. Exxon Mobil participates to maintain its approximately 69.6% ownership.
On April 5, 2018, Imperial was charged in Ontario over an alleged 2016 discharge of low-pH wastewater from its Sarnia refinery into the St. Clair River. The filing says the impact cannot yet be determined.
Imperial adopted new revenue-recognition and pension-cost presentation standards in 2018; the revenue standard had no material effect. It planned to adopt the amended lease standard in 2019 and was still assessing its financial-statement impact.

Whether improved downstream and chemical margins persist, and how the widening WTI/WCS differential affects upstream realizations.
Operational constraints and production trends at Cold Lake, Kearl and Syncrude.
The cash-flow and working-capital drivers behind the increase in operating cash flow, alongside higher capital spending and buybacks.
Progress and potential consequences of the Sarnia wastewater charge.
The eventual balance-sheet impact of lease-standard adoption and the scale of share repurchases under the amended issuer bid.