Imperial Oil Limited — Q1 2010 Form 10-Q
Business context and period: Unaudited U.S. GAAP results for the three months ended March 31, 2010, compared with Q1 2009. Amounts are Canadian dollars unless noted. Imperial reports Upstream, Downstream, and Chemical segments.
Financial results
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Operating revenues | $6,134 million | $4,653 million |
| Income before income taxes | $651 million | $402 million |
| Net income | $476 million | $289 million |
| Diluted earnings per share | $0.56 | $0.33 |
| Operating cash flow | $914 million | $(296) million |
| Capital and exploration expenditures | $900 million | $494 million |
| Cash at period end | $534 million | $755 million |
| Dividends per share | $0.10 | $0.10 |
Net margin was approximately 7.7%, versus 6.2% in Q1 2009. Total assets were $18,335 million and shareholders’ equity was $9,943 million at March 31, 2010. Current liabilities of $4,243 million exceeded current assets of $3,841 million; the resulting current ratio was approximately 0.90. Notes and loans payable were $109 million, with $30 million of capitalized lease obligations. Other long-term obligations were $2,679 million, including employee retirement benefits and asset-retirement and environmental liabilities.
Material changes and drivers
- Net income rose $187 million year over year. Upstream net income increased to $444 million from $142 million, while Downstream earnings fell to $39 million from $202 million. Chemical reported a $1 million loss versus $3 million income.
- Management attributed the Upstream improvement principally to higher crude prices, contributing about $550 million, partly offset by about $180 million in higher royalties and about $100 million of unfavorable foreign-exchange effects from a stronger Canadian dollar. Brent averaged US$76.32 per barrel, approximately 72% above Q1 2009.
- Downstream results reflected about $125 million of lower margins, approximately $30 million of unfavorable foreign exchange, and higher planned-maintenance costs. Chemical results were also affected by Sarnia ethylene-cracker maintenance.
- Operating cash flow improved from a use of $296 million to generation of $914 million. Management cited higher earnings, timing of income-tax payments, higher payables, and lower seasonal inventory builds. Investing used $807 million, including $813 million of property, plant and equipment additions. Cash increased $21 million from year-end.
- Upstream capital spending focused chiefly on advancing the Kearl oil sands project, with additional work at Cold Lake, Horn River, and Syncrude. The company made no share repurchases during the quarter other than shares bought to offset stock-option dilution; it paid $85 million in dividends.
Outlook, risks, and notable items
The filing provides no quantified earnings or production guidance. Management said pension-plan contributions were expected to increase in Q2 2010. It noted that quarterly results are not necessarily indicative of full-year results and identified market conditions, laws and government policy, operating conditions and costs, project schedules, performance, demand, commercial negotiations, and technical and economic factors as sources of uncertainty.
Production was affected by natural reservoir decline and maintenance: conventional crude averaged 24,000 barrels per day versus 26,000; natural gas averaged 273 million cubic feet per day versus 307 million. Cold Lake bitumen averaged 148,000 barrels per day, and planned Syncrude maintenance was completed during the quarter, with affected units returning to normal operations. Adoption of new variable-interest-entity guidance had no financial-statement impact. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Investor verification points
- Assess whether higher commodity prices and the associated royalty and currency impacts persist, and whether Downstream margins recover.
- Monitor Kearl and other capital-project spending, execution, and the effect of elevated capital expenditures on cash and liquidity.
- Check production trends, including natural declines and the timing and cost of planned maintenance.
- Review working-capital drivers behind the operating-cash-flow improvement, especially payable and tax-payment timing, and expected higher pension contributions.
- Track share repurchases under the issuer bid, which was scheduled to end June 24, 2010, and changes in retirement, environmental, and asset-retirement obligations.