01—Abstract
Summary
Summary of the 10-K filed March 11, 2004. Cited figures are marked; the original filing is the authoritative source.
Imperial Oil Limited's 10-K for fiscal 2003 (filed March 11, 2004) reports a record year.
Net earnings rose to C$1,682 milliona, or C$4.52 per share, up from C$1,224 million (C$3.23) in 2002, on total revenues of C$19.2 billion (up about 13%). Management attributes the gain mainly to higher realizations for natural gas and crude oil and stronger industry refining margins, partly offset by a stronger Canadian dollar. Natural resources earned C$1,139 million, petroleum products a record C$407 million, and chemicals C$37 million, with corporate and other at a positive C$99 million after the company retired its U.S. dollar debt.
Note that all figures are in Canadian dollars. The balance sheet strengthened, with total assets of C$12.4 billionb, shareholders' equity of C$5.8 billion, and total debt of C$1.4 billion, which is 20% of capital. Cash fell to C$448 million after heavy spending and a C$500 million pension contribution.
Capital and exploration spending was C$1.5 billionc, with about 90% of natural resources spending aimed at growth, including the Syncrude expansion. Shareholder returns remained substantial: the company repurchased roughly 16 million shares for C$799 million in 2003 and paid dividends of C$0.87 per share, the ninth consecutive year of dividend growth. Exxon Mobil owns about 69.6% of the shares, which limits the free float and shapes related-party dealings.
Key risks for investors include commodity price volatility, the strengthening Canadian dollar, rising pension funding needs, the long-dated Mackenzie gas and Cold Lake expansion projects, and the Syncrude expansion, which is expected to cost about C$2 billiond for the company's share. Sensitivity disclosures show that a US$3 per barrel move in crude prices changes annual after-tax earnings by a material amount, so the company's earnings remain closely tied to commodity markets.
02—Key points
Key Highlights
- Record net earnings of C$1,682 million (C$4.52/share), up about 37% from C$1,224 million in 2002
- Total revenues of C$19.2 billion, up about 13% year over year; Canada's largest integrated oil company
- Petroleum products segment posted a record C$407 million in net earnings, with margins improving on higher industry refining spreads
- Natural resources earnings rose to C$1,139 million on higher natural gas (C$6.60/mcf vs. C$4.02) and crude realizations, despite a stronger Canadian dollar
- Returned about C$1.1 billion to shareholders in 2003 through C$799 million in buybacks (over 16 million shares) and C$0.87/share in dividends
- Debt reduced to C$1.43 billion (20% of capital) and the C$600 million U.S.-dollar variable-rate debt was retired, removing a source of FX sensitivity
- Capital and exploration spending of C$1.5 billion in 2003, with planned spending of about C$1.5 billion in 2004 focused on growth (Syncrude expansion, Cold Lake, Mackenzie gas project)
03—Questions
Frequently Asked Questions
How profitable was Imperial Oil in 2003 compared with 2002?
Net earnings reached C$1,682 million, or C$4.52 per share, compared with C$1,224 million, or C$3.23 per share, in 2002. Higher natural gas and crude oil prices and stronger refining margins drove the increase, partly offset by a stronger Canadian dollar. Under U.S. GAAP, net earnings were slightly higher at US$1,705 million before the cumulative effect of accounting changes, per the reconciliation in the filing.
Is the dividend sustainable, and how is the company returning cash to shareholders?
The company declared dividends of C$0.87 per share in 2003, up from C$0.84, and has raised regular dividends for nine consecutive years. It also ran a normal course issuer bid, repurchasing about 16.3 million shares for C$799 million in 2003. Cash from operations of C$2.2 billion covered these payouts, though year-end cash fell to C$448 million after heavy capital spending and a C$500 million pension contribution.
What are the main risks to future earnings?
Earnings are highly sensitive to commodity prices. The filing estimates that a US$3 per barrel change in crude prices or a 60-cent per mcf change in natural gas prices moves annual after-tax earnings materially. Currency is also a factor, with an 8-cent move in the Canadian dollar versus the U.S. dollar affecting after-tax earnings by roughly C$100 million or more annually. Other risks include pension funding needs, regulatory approval of the Mackenzie gas and Cold Lake expansion projects, and cost overruns on the Syncrude expansion.
What is Exxon Mobil's role in Imperial Oil?
Exxon Mobil Corporation owns about 69.6% of Imperial's outstanding shares, so it controls the company. Imperial buys foreign crude mainly through Exxon Mobil, shares some research and support services with it, and borrowed C$818 million from an Exxon Mobil affiliate in 2003 to refinance U.S.-dollar debt. The filing states that these transactions were conducted on terms as favorable as those with unrelated parties. Exxon Mobil also sold shares back to the company during buybacks to maintain its 69.6% stake.
What major growth projects are planned?
The largest project is the Syncrude expansion, which is expected to raise total synthetic crude capacity to about 55,600 cubic metres (350,000 barrels) per day by mid-2006. Imperial's 25% share of project costs is roughly C$2 billion. Other projects include Cold Lake stages 14 to 16 and extended stages 9 and 10, with a total cost of about C$1 billion and production targeted for the late 2000s, and the Mackenzie Valley gas project, whose main regulatory applications were expected in 2004.
04—Continue