01—Abstract
Summary
Summary of the 10-K filed March 26, 2003. Cited figures are marked; the original filing is the authoritative source.
Imperial Oil Limited's 2002 Form 10-K shows a company that remained highly profitable despite weaker downstream margins.
Net earnings were C$1,210 milliona, or C$3.19 per share, versus C$1,239 million (C$3.15) in 2001. Total revenues were C$17.0 billion, roughly flat year over year. Natural resources (upstream) earned C$1,042 million, the second-best year on record, driven by higher heavy-oil (blended bitumen) prices that more than offset lower natural gas prices and reduced crude production.
Petroleum products earnings fell to C$127 millionb from a record C$353 million because of sharply lower refining and marketing margins, while chemicals improved to C$52 million. The balance sheet strengthened: shareholders' equity rose to C$5,212 million from C$4,333 million, and long-term debt increased to C$1,466 million, mostly from C$500 million of floating-rate notes. Cash from operating activities fell to C$1,676 million from C$2,004 million, largely on working-capital and tax-timing effects.
Capital and exploration spending rose to C$1,600 millionc, with about 90% directed at growth, including the Syncrude expansion and Cold Lake stages 11 to 13. The company plans roughly C$1.5 billion of capital spending in 2003. Exxon Mobil Corporation owns about 69.6% of the shares, which limits free float and is a key governance consideration for investors.
For investors, the central themes are the upstream growth pipeline (Cold Lake expansion, Syncrude expansion, and the Mackenzie gas project), the sensitivity of earnings to crude prices, refining margins, and the Canadian dollar, and the dividend, which rose to C$0.84d per share from C$0.83. Management also noted that a pension funding requirement is likely after the 2003 actuarial valuation, given weaker financial markets since 2000.
02—Key points
Key Highlights
- Net earnings of C$1,210 million (C$3.19/share) in 2002, down slightly from C$1,239 million (C$3.15/share) in 2001, with total revenues of C$17.0 billion.
- Natural resources earned C$1,042 million, the second-best year on record, on higher blended bitumen prices, partly offset by lower natural gas prices and reduced crude production.
- Petroleum products earnings fell to C$127 million from a record C$353 million, due to significantly lower industry refining and marketing margins.
- Shareholders' equity rose to C$5,212 million from C$4,333 million; long-term debt increased to C$1,466 million after issuing C$500 million of floating-rate notes.
- Capital and exploration expenditures rose to C$1,600 million (from C$1,115 million), with about 90% focused on growth; 2003 spending is planned at about C$1.5 billion.
- Dividends declared were C$0.84 per share (up from C$0.83), and the company has increased regular dividends in each of the past eight years.
- Exxon Mobil Corporation owns about 69.6% of outstanding shares, a concentrated ownership position that limits free float.
03—Questions
Frequently Asked Questions
What drove the change in Imperial Oil's earnings in 2002?
Higher blended bitumen prices in natural resources, plus favorable foreign-exchange effects on U.S. dollar debt, largely offset lower natural gas prices, reduced crude production, and weak refining and marketing margins. Upstream earnings were C$1,042 million, while downstream earnings fell to C$127 million from C$353 million.
How are the company's growth projects positioned for future production?
The Cold Lake stages 11 to 13 project was completed in late 2002 and is expected to add about 4,800 cubic metres (30,000 barrels) per day by the second half of 2003. The Syncrude expansion and Aurora development are expected to raise the company's share of gross production to more than 14,200 cubic metres (89,000 barrels) per day, with startup expected in early 2005 at a company share cost of about C$1.2 billion. A Cold Lake expansion (stages 14 to 16) is pending regulatory approval, with production as early as 2007.
Is the company's dividend and capital return policy sustainable?
Dividends rose to C$0.84 per share in 2002, and regular dividends have increased for eight consecutive years. The company completed its normal course buyback in early 2002 and did not repurchase shares for the rest of the year. Since 1995 it has repurchased 202.7 million shares for C$5,169 million. Management expects 2003 capital spending of about C$1.5 billion to be financed mainly from internally generated funds.
What risks should investors consider from this filing?
Key risks include crude oil and natural gas price volatility, refining and marketing margin swings, and Canadian dollar exchange rates. The company estimates that a US$3 per barrel change in crude prices affects after-tax earnings by about C$180 million, and a six-cent change in the Canadian dollar by about C$185 million. Investors should also note the likely pension funding requirement after the 2003 actuarial valuation, the C$1,780 million gap between retirement obligations and plan assets, and the regulatory and royalty uncertainty around the Mackenzie gas and Cold Lake expansion projects.
What is the impact of Exxon Mobil's majority ownership on investors?
Exxon Mobil owns about 69.6% of the outstanding shares, and it has maintained that stake by participating in the company's share buybacks. This limits the free float, and the company conducts significant related-party business with ExxonMobil, including C$2,191 million of purchases and C$1,036 million of sales in 2002. The company states these transactions were on terms as favorable as those with unrelated parties.
04—Continue