Imperial Oil Limited — Q1 2016 Form 10-Q
Business context and reporting period. Unaudited U.S. GAAP results for the three months ended March 31, 2016, compared with Q1 2015. Amounts are Canadian dollars unless stated otherwise. Imperial operates in Upstream, Downstream and Chemicals.
Financial performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Operating revenue | $5.174 billion | $6.170 billion |
| Income (loss) before tax | $(149) million | $561 million |
| Net income (loss) | $(101) million | $421 million |
| Diluted EPS | $(0.12) | $0.50 |
| Operating cash flow | $49 million | $281 million |
| Capital additions to property, plant and equipment | $391 million | $1.011 billion |
- Net margin was approximately -2% versus 7% a year earlier. Depreciation and depletion rose to $424 million from $317 million; financing costs were $15 million versus $3 million.
- By segment, net income (loss) was Upstream $(448) million (prior-year loss $(189) million), Downstream $320 million (down from $565 million), and Chemicals $49 million (down from $66 million).
- Cash and cash equivalents were $155 million at March 31, versus $203 million at December 31, 2015. Current assets were $3.693 billion and current liabilities $5.118 billion.
- Long-term debt was $7.052 billion, up from $6.564 billion at year-end; notes and loans payable were $1.843 billion. The company issued $495 million of long-term debt from an affiliated-company facility to support normal operations and capital projects.
- Dividends paid totaled $119 million; the quarterly dividend was $0.14 per share, versus $0.13. Cash decreased by $48 million during the quarter.
Changes, operating context and outlook
- Revenue declined about 16% year over year, while net income swung to a loss. Management attributed weaker results principally to lower crude realizations and refinery margins amid substantially lower oil prices.
- WTI averaged US$33.63 per barrel versus US$48.57; Western Canada Select averaged US$19.30 versus US$33.88. Upstream results were adversely affected by lower realizations (about $355 million), partly offset by the weaker Canadian dollar (about $70 million). Downstream earnings were reduced mainly by lower refinery margins (about $395 million), partly offset by currency effects (about $120 million).
- Production improved: gross Kearl bitumen averaged 194,000 barrels per day versus 95,000; Cold Lake averaged 165,000 versus 152,000; Imperial’s Syncrude share averaged 80,000 versus 73,000. Refinery throughput was 398,000 barrels per day, utilization 94%, and petroleum product sales 469,000 barrels per day.
- On March 8, Imperial announced agreements to sell and transition its remaining company-owned Esso retail stations to a branded wholesaler model for approximately $2.8 billion. Closing was expected by year-end 2016, subject to regulatory approval. The company anticipated a gain of $2.0–$2.1 billion before tax ($1.6–$1.7 billion after tax), subject to final adjustments; the stations’ $742 million of assets were classified as held for sale at quarter-end. The anticipated gain was not reported as Q1 income.
- No specific earnings or production guidance was provided in the supplied filing text. Management cautioned that forward-looking outcomes may differ due to market conditions, legal or policy changes, operating costs and conditions, project schedules and performance, demand, negotiations, and technical or economic factors.
- Imperial reported that a seven-cent change in the Canadian dollar versus the U.S. dollar would affect after-tax earnings by approximately $450 million in the indicated direction. It also disclosed an environmental proceeding concerning an alleged 2014 discharge at its Sarnia chemical plant; the filing text does not state a financial estimate of potential exposure.
Investor verification points
- Confirm the Esso retail-station transaction’s regulatory approvals, closing, final proceeds and realized gain.
- Track crude benchmarks, Canadian-dollar movements, Upstream realizations, and Downstream refining margins against the quarter’s key earnings drivers.
- Assess cash generation relative to capital spending, liquidity, and the increase in debt, including the affiliated-company borrowing.
- Review the status and potential financial consequences of the Sarnia environmental proceeding; no quantified exposure is provided here.
- Confirm whether the disclosed operating improvements and market conditions persisted beyond Q1; the filing states quarterly results are not necessarily indicative of full-year results.