Imperial Oil Limited — Q1 2017 10-Q
Reporting period: Three months ended March 31, 2017. Unaudited consolidated statements prepared under U.S. GAAP; amounts are Canadian dollars unless otherwise noted. Comparisons are with Q1 2016, except balance-sheet comparisons, which are with December 31, 2016.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Operating revenue | $6.958 billion | $5.174 billion |
| Total revenues and other income | $7.156 billion | $5.222 billion |
| Net income (loss) | $333 million | $(101) million |
| Diluted earnings (loss) per share | $0.39 | $(0.12) |
| Operating cash flow | $354 million | $49 million |
| Capital and exploration expenditures | $153 million | $408 million |
| Cash at period end | $672 million | $155 million at March 31, 2016 |
| Total long-term debt, including capital leases | $5.026 billion | $5.032 billion at Dec. 31, 2016 |
| Current assets / current liabilities | $3.906 billion / $3.209 billion | $3.831 billion / $3.883 billion at Dec. 31, 2016 |
| Dividends per share | $0.15 | $0.14 |
Net margin was approximately 4.7% in Q1 2017 versus approximately negative 2.0% in Q1 2016, calculated as net income divided by operating revenue. Current assets exceeded current liabilities by $697 million at March 31, 2017; the current ratio was approximately 1.22.
Material changes and operating results
- Net income improved by $434 million year over year. The filing attributes the improvement primarily to stronger crude realizations and the return to profitability, with an important contribution from an asset-sale gain.
- Upstream reported an $86 million net loss, improved from a $448 million loss. Higher Canadian crude realizations contributed about $600 million; higher royalties (about $80 million), lower volumes (about $70 million), and higher operating expenses (about $50 million) partly offset the benefit.
- Downstream net income rose to $380 million from $320 million, including a $151 million after-tax gain on sale of surplus Ontario property. Lower marketing margins, approximately $60 million, partly offset this. Refinery throughput was 398,000 barrels per day, unchanged; product sales increased to 486,000 barrels per day from 469,000.
- Chemical net income declined to $45 million from $49 million. Corporate and Other reported a $6 million loss versus a $22 million loss.
- WTI averaged US$51.78 per barrel versus US$33.63; WCS averaged US$37.26 versus US$19.30. The WTI/WCS differential narrowed to 28% from 43%.
- Production was lower across Cold Lake, Kearl, and Syncrude. The company cited steam-cycle timing at Cold Lake, planned and unplanned maintenance at Kearl, and a fire at the Syncrude Mildred Lake upgrader.
Cash flow, liquidity, debt, and commitments
Operating activities generated $354 million, while investing activities provided $61 million, compared with $358 million used in Q1 2016. Investing cash flow benefited from lower property additions and $183 million of asset-sale proceeds. Financing activities used $134 million, including $127 million of dividends. Cash increased by $281 million during the quarter. Operating cash flow included significant working-capital movements, including a $464 million outflow related to income taxes payable.
Long-term debt was $5.026 billion, including $4.447 billion of debt and $579 million of capital leases; current notes and loans payable were $202 million. The company disclosed additional long-term pipeline transportation commitments totaling about $2 billion, expected to be fulfilled in the normal course of business.
Outlook, risks, and unusual items
- The filing provides no quantitative earnings or production guidance. It cautions that first-quarter results are not necessarily indicative of full-year results.
- The Ontario property sale generated a $174 million pretax gain ($151 million after tax), a significant non-recurring contributor to results.
- Forward-looking results may differ due to market conditions, laws and government policy, operating conditions and costs, project schedules, performance, oil and gas demand, commercial negotiations, and technical or economic factors. The filing says market-risk disclosures had not materially changed from the 2016 Form 10-K.
- Revenue from contracts with customers was expected to be adopted in 2018, with no material financial-statement effect expected. Lease accounting was planned for adoption in 2019; the company was evaluating its impact. A retirement-benefits presentation update was also expected to be adopted in 2018 and remained under evaluation.
- Management concluded disclosure controls were effective as of March 31, 2017; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- How much of the earnings improvement is repeatable after excluding the $151 million after-tax Ontario property-sale gain.
- Whether upstream production recovers from maintenance, steam-cycle timing, and the Syncrude fire, and how benchmark prices and differentials affect realizations.
- Whether working-capital movements, particularly income-tax payments, affect cash generation in subsequent quarters.
- The financial exposure and flexibility associated with approximately $2 billion of pipeline transportation commitments, and the company’s related-party debt and transactions.
- The scale and timing of potential balance-sheet effects from lease accounting and other pending accounting standards.